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The Market for Sweekstakes

Author

Listed:
  • Chew Soo Hong
  • Guofu Tan

Abstract

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.

Suggested Citation

  • Chew Soo Hong & Guofu Tan, 2004. "The Market for Sweekstakes," IEPR Working Papers 04.4, Institute of Economic Policy Research (IEPR).
    • Handle: RePEc:scp:wpaper:04-4
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    Cited by:

    1. Songfa Zhong & Salomon Israel & Hong Xue & Richard P Ebstein & Soo Hong Chew, 2009. "Monoamine Oxidase A Gene (MAOA) Associated with Attitude Towards Longshot Risks," PLOS ONE, Public Library of Science, vol. 4(12), pages 1-4, December.
    2. Ailawadi, Kusum L. & Gedenk, Karen & Langer, Tobias & Ma, Yu & Neslin, Scott A., 2014. "Consumer response to uncertain promotions: An empirical analysis of conditional rebates," International Journal of Research in Marketing, Elsevier, vol. 31(1), pages 94-106.
    3. Soo Hong Chew & Haoming Liu & Alberto Salvo, 2021. "Adversity-hope hypothesis: Air pollution raises lottery demand in China," Journal of Risk and Uncertainty, Springer, vol. 62(3), pages 247-280, June.
    4. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
    5. Yukihiro Miwa & Makoto Morisada & Wirawan D. Dahana, 2017. "Investigating the Impacts of Individual Traits and Product Characteristics on Customer Evaluation of Sweepstakes," International Journal of Marketing Studies, Canadian Center of Science and Education, vol. 9(5), pages 1-16, October.

    More about this item

    Keywords

    Sweepstakes; risk aversion; longshot preference behavior; weighted utility model; Nash equilibrium;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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