Costs, biases and betting markets: new evidence

Michael A. Smith, David Paton () and Leighton Vaughan-Williams
Authors registered in the RePEc Author Service: Leighton Vaughan Williams ()

Working Papers from Nottingham Trent University, Nottingham Business School, Economics Division

Abstract: In recent years, person-to-person wagering on Internet ‘betting exchanges’ (sometimes known as ‘matched betting’) has become an increasingly important medium for betting on horse racing, sports and special events. Established gambling operators have argued that betting exchanges should not be allowed on the grounds that they represent unfair competition. In this paper, we argue that, in fact, betting exchanges have brought about reductions in traditional market biases and significant efficiency gains by lowering transaction costs for consumers. As such, the growth of exchange betting should be viewed as a welcome and innovatory phenomenon whereby allocative efficiency in the gambling market is improved. We test this hypothesis using data on UK horse racing from betting exchanges and from traditional betting media. We find a monotonic negative relationship between transaction costs and market efficiency. Further, in contrast to traditional betting media, we find that betting exchanges exhibit both weak and strong form market efficiency.

Keywords: matched betting; betting exchanges; market efficiency; favourite-longshot bias. (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: Written
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