How digitalization can shape markets: the case of sports betting

Abstract

Digitalization has an impact on many vested businesses, decreasing marginal costs and increasing informed customers, among other things. However, measuring the impact of digitalization remains difficult. Betting markets provide a clean setting to estimate the price impact of digitalization, as products are homogeneous and it is easy to measure pricing behaviour. Consistent with mixed strategy models under imperfect information, we show that between 2000 and 2023, transaction costs for gamblers dropped by over 60%, although transaction-cost dispersion persists. Furthermore, we also find that betting markets became more informationally efficient over this period, with a significant decrease in the favourite–longshot bias.