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Optimal pricing in the online betting market

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  • Montone, Maurizio

Abstract

I find that the optimal price of a bet for a risk-averse bookmaker is a function of elasticity of demand and the number of outcomes of the betting event. In the presence of shocks to the order flow, however, the optimal price can change, and large adjustments can create arbitrage opportunities for informed investors. Using a large sample of online bookmakers and a unique data set of real-time betting odds, I find strong support for these predictions. Overall, the results shed new light on the efficiency of online betting prices.

Suggested Citation

  • Montone, Maurizio, 2021. "Optimal pricing in the online betting market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 344-363.
    • Handle: RePEc:eee:jeborg:v:186:y:2021:i:c:p:344-363
    DOI: 10.1016/j.jebo.2021.04.007
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    2. Hegarty, Tadgh & Whelan, Karl, 2023. "Do Gamblers Understand Complex Bets? Evidence From Asian Handicap Betting on Soccer," MPRA Paper 117244, University Library of Munich, Germany.
    3. Whelan, Karl & Hegarty, Tadgh, 2023. "Disagreement and Market Structure in Betting Markets: Theory and Evidence from European Soccer," CEPR Discussion Papers 18144, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Betting market; Market efficiency; Risk aversion; Arbitrage;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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