Interdependent lotteries and the jackpot model of lottery demand

Abstract

Bettors may view different gambles either as substitutes or complements. Assuming that the grand prize is the main driver of the demand for multi-prize lottery bets, this paper presents a theory of lottery sales maximization considering possible complementarity or substitutability among different lottery gambles offered by a single operator. Optimal payout ratios are derived accounting not only for interrelation among games but also for their relative popularity. The new profit optimization rule is then applied to a dataset of two Greek lotteries.