ABSTRACT
We estimate effective price elasticities for different quantiles of the demand distribution of the UK National Lottery and the Canadian Lotto 649. We show that price elasticities vary significantly from draw to draw and have a tendency to increase with lottery participation and jackpot size. Our findings indicate that setting lottery rules on the basis of mean effective price elasticities should be faced with caution because expected profits are negatively related to the evident variation of elasticities among lottery draws. We also simulate alternative active rollover distributions and show that limiting the rollover accumulation by withholding portions and ploughing them back in future nonrollover draws is potentially profitable.
Acknowledgements
The authors thank an anonymous referee for his valuable comments and suggestions that significantly contributed to this article.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 The inclusion of a lagged dependent variable is not unanimously viewed as representing addiction at all.
2 We opt to ignore smaller prizes because their contribution to expected value does not cause great variability to effective price.