The Market for Sweekstakes
Soo Hong Chew () and
No 04.4, IEPR Working Papers from Institute of Economic Policy Research (IEPR)
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.
Keywords: Sweepstakes; risk aversion; longshot preference behavior; weighted utility model; Nash equilibrium (search for similar items in EconPapers)
JEL-codes: D40 D80 L1 H40 (search for similar items in EconPapers)
Pages: 29 pages
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Journal Article: The Market for Sweepstakes (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:scp:wpaper:04-4
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