OWN‐ AND CROSS‐PRICE ELASTICITIES FOR GAMES WITHIN A STATE LOTTERY PORTFOLIO

Lotto demand modeling typically focuses on a single game and evaluates whether estimated “effective price” (expected loss from buying one ticket) elasticity is consistent with net revenue maximization. However, a portfolio of several different lottery games is now usually offered to players and judging the effectiveness of agencies in generating revenue requires estimation of both cross‐price and own‐price elasticities. Here we employ data from Spain to derive elasticities. Results imply that games are under‐priced if net revenue maximization is the goal. But the cross‐price estimates suggest that the operator is successful in limiting the extent to which a large jackpot on one game cannibalizes same‐week sales of other games. The paper also analyzes the impacts from two increases in the level of entry fees introduced during the data period. These appear to have affected net revenue favorably. (JEL D12, G11, H27, H30, L83)