Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries

38 Pages Posted: 1 Feb 2010 Last revised: 9 Jun 2023

See all articles by Brian G. Knight

Brian G. Knight

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Nathan Schiff

Shanghai University of Finance and Economics - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2010

Abstract

This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. We first develop a simple theoretical model in which consumers choose between state lotteries and face a trade-off between travel costs and the price of a fair gamble, which is declining in the size of the jackpot and the odds of winning. Given this trade-off, the model predicts that per-resident sales should be more responsive to prices in small states with densely populated borders, relative to large states with sparsely populated borders. Our empirical analysis focuses on the multi-state games of Powerball and Mega Millions, and the identification strategy is based upon high-frequency variation in prices due to the rollover feature of lottery jackpots. The empirical results support the predictions of the model. The magnitude of these effects is large, suggesting that states do face competitive pressures from neighboring lotteries, but the effects vary significantly across states.

Suggested Citation

Knight, Brian G. and Schiff, Nathan, Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries (January 2010). NBER Working Paper No. w15713, Available at SSRN: https://ssrn.com/abstract=1544763

Brian G. Knight (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nathan Schiff

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

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