Optimal Pricing in the Online Betting Market

30 Pages Posted: 11 Jan 2013 Last revised: 30 Apr 2021

Date Written: May 1, 2020

Abstract

I find that the optimal price of a bet for a risk-averse bookmaker is a function of elasticity of demand and the number of outcomes of the betting event. In the presence of shocks to the order flow, however, the optimal price can change, and large adjustments can create arbitrage opportunities for informed investors. Using a large sample of online bookmakers and a unique data set of real-time betting odds, I find strong support for these predictions. Overall, the results shed new light on the efficiency of online betting prices.

Keywords: Betting market; Market efficiency; Risk aversion; Arbitrage

JEL Classification: G10; G12; G14

Suggested Citation

Montone, Maurizio, Optimal Pricing in the Online Betting Market (May 1, 2020). Journal of Economic Behavior and Organization, Volume 186, June 2021, Pages 344-363., Available at SSRN: https://ssrn.com/abstract=2199035 or http://dx.doi.org/10.2139/ssrn.2199035

Maurizio Montone (Contact Author)

Utrecht University ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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