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The Market for Sweekstakes

  • Chew Soo Hong
  • Guofu Tan

This paper studies the market for monopolistically supplied sweepstakes. We derive equilibrium demands for fixed-prize and variable-prize sweepstakes and determine the profit maximizing prize level and payout ratio respectively. It can be profitable to offer each type of sweepstake when there are large enough number of weighted utility consumers who have constant absolute risk attitudes, are strictly averse to small as well as symmetric risks, and display longshot preference behavior. Moreover, for the variable-prize sweepstake, the supplier will generally find it profitable to combine sweepstakes from two populations, o?ering a single sweepstake to the combined population. This corroborates the recent spate of mergers of smaller state lotteries into larger ones.

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File Function: First version, 2004
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Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 04.4.

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Length: 29 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:scp:wpaper:04-4
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Web page: http://www.usc.edu/dept/LAS/economics/IEPR/
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