The Market for Sweepstakes

摘要

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 pay-out ratio respectively.It can be profitable to offer each type of sweepstake when there is a 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 behaviour.Moreover,for the variable-prize sweepstake,the supplier will generally find it profitable to combine sweepstakes targeting two smaller populations,and offer a single sweepstake to the combined population.This implication is corroborated by the recent spate of mergers of smaller state lotteries into larger ones.