ARE LOTTERIES SUBSTITUTES FOR EACH OTHER?

Abstract

As lottery becomes a more and more important source for government tax revenue, one opinion argues that governments should strategically manage different lotteries and coordinate the prices of different lotteries. Although, in the literature, many studies have examined single lottery price elasticity, little has been done to understand the relationship between different lotteries. We examine the substitution effect between two almost identical national lotteries in Canada: Lotto 6/49 and Super 7 (Now called Lotto Max). By exploiting a social experiment, we employ a Regression Discontinuity method to estimate the elasticity of the lotteries. We find surprisingly low cross elasticity between these two, almost identical, Canadian lotteries. If the nominal ticket price of one lottery doubles, the demand for the other lottery does not change significantly. This puzzlingly low substitution effect between the two, almost identical, Canadian lotteries provides a benchmark for future theoretical studies.