This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. Our theoretical model, in which consumers consider both travel costs and lottery payoffs, predicts that per-resident sales should be more responsive to prices in small states with densely populated borders. Using weekly sales data from US lotteries and drawing identification from the rollover
feature of jackpots, we estimate this responsiveness and find large effects that vary significantly across states. Using these estimates, we show that competitive pressures from neighboring states may lead to substantially lower optimal prices. (JEL H27, H71, H73, R51)
Knight, Brian, and Nathan Schiff.
"Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries."
American Economic Journal: Economic Policy,
Taxation, Subsidies, and Revenues: Other Sources of Revenue
State and Local Taxation, Subsidies, and Revenue
State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
Finance in Urban and Rural Economies