The Effect of New Jersey Lottery Promotions on Consumer Demand and State Profits
- 19 Downloads
We estimate elasticities of demand for New Jersey’s Pick 3 and Pick 4 midday/evening numbers games by exploiting random price variation generated by episodic promotions for each game. These Pick 3 Green Ball and Pick 4 Red Ball promotions lower the price of a lottery ticket for an evening numbers game by increasing prize payments during the 28-day promotion periods. The own-price elasticities of demand for the evening Pick 3 and Pick 4 games are both approximately –0.5. During the promotions, the loss in profit margins outweighs the gain in sales because of this inelastic demand. However, the combined effects of lower evening Pick 3 profits and increased sales of complementary products boost lottery profits by $30,000 per day, or $840,000 during the 28 days of the Green Ball promotion, while the combined effects of lower evening Pick 4 profits and reduced sales of substitute products decrease lottery profits by $129,000 per day, or $3.61 million during the 28 days of the Red Ball promotion. If higher sales after the promotion are included, the total increase in profits potentially reaches $14.48 million under the Green Ball game, while the Red Ball promotion loses money for the lottery even considering its positive lagged effect.
Keywordslottery gambling price elasticity policy evaluation
JEL ClassificationsD12 H71 L83
The authors wish to thank the editor and anonymous referees for several constructive suggestions. We also thank M.B. Crowley for his assistance.
- Akay, Ozzy, Mark D. Griffiths, and Drew B. Winters . 2008. An Examination of Two Competing Hypotheses for the Demand for Lottery Tickets. The Journal of Gambling Business and Economics, 2 (1): 77–102.Google Scholar
- Cook, Philip J., and Charles T. Clotfelter . 1993. The Peculiar Scale Economies of Lotto. American Economic Review, 83 (3): 634–643.Google Scholar
- Cuddington, John T., and Leila Dagher . 2011. A Primer on Estimating Short and Long-Run Elasticities, http://inside.mines.edu/~jcudding/papers/Elasticities/Cuddington-Dagher-Estimating%20SR%20and%20LR%20Elasticities(12-19-2011).pdf, accessed 15 September 2013.
- Farrell, Lisa, Roger Hartley, Gauthier Lanot, and Ian Walker . 2000. The Demand for Lotto: The Role of Conscious Selection. Journal of Economic and Business Statistics, 18 (2): 228–241.Google Scholar
- Grote, Kent R., and Victor A. Matheson . 2011. The Economics of Lotteries: A Survey of the Literature: College of the Holy Cross, Department of Economics, Paper # 11-09.Google Scholar
- Gulley, O. David, and Frank A. Scott Jr . 1993. The Demand for Wagering on State-Operated Lotto Games. National Tax Journal, 45 (1): 13–22.Google Scholar
- Guryan, Jonathan, and Melissa S. Kearney . 2009. Is Lottery Gambling Addictive? American Economic Journal: Economic Policy, 2 (3): 90–110.Google Scholar
- Matheson, Victor, and Kent R. Grote 2008. U.S. Lotto Markets. in Handbook of Sports and Lottery Markets. edited by Donald B., Hausch, and William T., Ziemba. New York: North Holland.Google Scholar
- Mikesell, John L . 1994. State Lottery Sales and Economic Activity. National Tax Journal, 47 (1): 165–171.Google Scholar
- Starr-McCluer, Martha . 2000. The Effects of Weather on Retail Sales. Washington, DC: Federal Reserve Board Discussion Paper No. 2000–08 (Jan.).Google Scholar
- Vrooman, David H . 1976. An Economic Analysis of the New York State Lottery. National Tax Journal, 29 (4): 482–489.Google Scholar
- Yu, Kam . 2008. Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory. NBER Working Papers, No. 14020.Google Scholar