The elasticity of demand for wagering in an unregulated market

E. Feess and C. R. Schumacher

Applied Economics, 2013, vol. 45, issue 15, pages 2083-2090

Abstract: The literature estimating the take-out rate (price) elasticity of horse race wagering has consistently found values far above one. The persistence of these apparently inefficiently high prices can be attributed to institutional factors of the US market where federal taxes are imposed on the total amount wagered, and not on the bookmakers’ revenue. By investigating all horse races in New Zealand from August 1993 to April 2009, our article is the first one to consider price setting for wagering in an unregulated market where taxes for a monopolistic betting agency are based on revenues. In such a setting, one would expect elasticities close to one, but in all econometric specifications, we find values well below one. We identify two reasons why higher prices could nevertheless reduce profits: cross price elasticities are negative and, due to the specific features of parimutuel betting, international competitors may only be attracted when take-out rates are above a critical threshold.

Date: 2013
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2011.650331 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:applec:45:y:2013:i:15:p:2083-2090

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.asp

Access Statistics for this article

Applied Economics is edited by Mark Taylor

More articles in Applied Economics from Taylor and Francis Journals
Series data maintained by Michael McNulty ().