The effect of new jersey lottery promotions on consumer demand and state profits

Kathryn L. Combs, Jocelyn Elise Crowley, John A. Spry

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)336-348
Number of pages13
JournalEastern Economic Journal
Volume40
Issue number3
DOIs
StatePublished - Jan 1 2014

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • gambling
  • lottery
  • policy evaluation
  • price elasticity

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