Demand for Lottery Gambling: Evaluating Price Sensitivity Within a Portfolio of Lottery Games

Abstract

This article introduces a new approach to analyzing whether lottery games are complements or substitutes, and whether a portfolio of lottery games is optimally priced. We estimate Barten's synthetic differential demand system for the on-line lottery games operated by the Texas Lottery Commission. The demand system approach imposes theory-consistent demand restrictions that allow identifcation of parameters for games without price variation. We use the estimated parameters from the Barten model to construct expenditure and price elasticities. Results indicate that on-line games in Texas are generally substitutes for one another and the portfolio of games is not priced to maximize proft.

Estimating the Demand for Lottery Gambling

“…Although the semi-log specification best matches the observed data, there may be applications where a log-linear approach is necessary, for example, demand systems estimation using the Almost Ideal, Rotterdam, or Barten synthetic models to recover the full set of price and expenditure elasticities (Trousdale and Dunn Forthcoming). Our regression analysis demonstrates that relative to the effect of ignoring endogeneity of effective price, the omission of drawings with negative expected net revenue is an order of magnitude greater.…”

“…Thus, regardless of the specification, our regression results strongly reject that Lotto Texas is profit maximizing as a stand-alone game. Of course, Lotto Texas is not the only game offered by the TLC, and recent work finds evidence of cross-price effects across games within a lottery portfolio (Perez and Forrest 2011; Trousdale and Dunn Forthcoming). Indeed, our results suggest Lotto Texas and Mega Millions are complements.…”

The Effect of Casino Proximity on Lottery Sales: Evidence From Maryland

“…In addition, these authors found that the introduction of a temporary lottery product contributes to net sales. In contrast to the above studies on lotteries, Trousdale and Dunn () focused on the price elasticity of demand for “online” lottery products in Texas. They found mostly substitute relationships among the different types of online lottery products studied.…”

Personality, Luck Beliefs, and (Non-?) Problem Lottery Gambling

“…"A lottery is a taxation upon all the fools in creation", suggests Fielding's 1732 comic opera, The Lottery (2004, p. 2). Unfairness to fools aside, if this was lottery gambling's most serious aspect it would be of scant scholarly or practical interest outside fiscal studies (Trousdale and Dunn 2014; for review see Perez and Humphreys 2011). But chancing one's luck on the "light drug" (Thege and Hodgins 2014, p. 29) of statesponsored lottery gambling is not simply a harmless, recession-proof form of raising government revenue (Horváth and Paap 2012).…”