Monopoly rents and price fixing in betting markets

Betting markets provide an ideal environment in which to examine monopoly power due to the availability of detailed information on product pricing. In this paper we argue that the pricing strategies of companies in the UK betting industry are likely to be an important source of monopoly rents, particularly in the market for forecast bets. Pricing in these markets are shown to be explicitly coordinated. Further, price information is asymmetrically biased in favor of producers. We find evidence, based on UK data, that pricing of CSF bets is characterized by a significantly higher markup than pricing of single bets. Although this differential can in part be explained by the preferences of bettors, it is reasonable to attribute a significant part of the differential as being due to monopoly power

A policy response to the e-commerce revolution: the case of betting taxation in the UK

Several environmental changes in the 1990s – including the introduction of a national lottery, the rise of Internet gambling, and the reduction of trade barriers within the EU – induced the UK government to initiate a large-scale review of betting duty. As a result of this review, the government recently announced a significant reduction in betting taxes. They also decided to replace the current general betting duty (GBD), levied as a proportion of betting stakes, with a gross profits tax (GPT), based on the net revenue of bookmakers. We examine the economic rationale behind these decisions and demonstrate how these tax changes have broad implications regarding optimal levels of taxation for other sources of government revenue

The Churchill betting tax, 1926-30: a historical and economic perspective

This paper examines British Government policy with regard to the taxation of betting, from a historical and economic perspective. The taxation of betting is traced to the introduction in 1926 of a tax on betting turnover by the Chancellor of the Exchequer, Winston Churchill. By 1930 the tax had been scrapped. This paper seeks to examine what lessons can be learned from this attempt at the introduction of a new tax and from subsequent Government policy with respect to betting taxation, and asks what policy implications can be drawn by other countries experimenting with the introduction of taxes on the turnover or gross profits of their betting operators

Forecasting the decisions of the US Supreme Court: lessons from the ‘affordable care act’ judgment

This paper examines the 2012 US Supreme Court consideration of the Affordable Care Act, and the resulting judgment, with a view to learning what lessons this landmark case can afford us into the way in which the US Supreme Court works, so helping us forecast its decisions. Although this is simply one judgment among many, a case is advanced here that the details of the way that the judgment was made can be used to help arbitrate between conflicting interpretations in the literature as to the way that the US Supreme Court reaches its decisions. It is argued that consideration of this case does provide particular insights which might usefully improve forecasts of future Supreme Court decisions

Forecasting the Outcome of Closed-Door Decisions: Evidence from 500 Years of Betting on Papal Conclaves

Closed-door decisions may be defined as decisions in which the outcome is determined by a limited number of decision-makers and where the process is shrouded in at least some secrecy. In this paper, we examine the use of betting markets to forecast on particular closed-door decision, the election of the Pope. Within the context of 500 years of papal election betting, we employ a unique dataset of betting on the 2013 papal election to investigate how new public information is incorporated into the betting odds. Our results suggest that the market was generally unable to incorporate effectively such information. We venture some possible explanations for our findings and offer suggestions for further research into the prediction and predictability of other 'closed-door' decisions

Prediction Markets, Social Media and Information Efficiency

We consider the impact of breaking news on market prices. We measure activity on the micro-blogging platform Twitter surrounding a unique, newsworthy and identifiable event and investigate subsequent movements of betting prices on the prominent betting exchange, Bet- fair. The event we use is the Bigotgate scandal, which occurred during the 2010 UK General Election campaign. We use recent developments in time series econometric methods to identify and quantify movements in both Twitter activity and Betfair prices, and compare the timings of the two. We find that the response of market prices appears somewhat sluggish and is indicative of market inefficiency, as Betfair prices adjust with a delay, and there is evidence for post-news drift. This slow movement may be explained by the need for corroborating evidence via more traditional forms of media. Once important Tweeters begin to Tweet, including importantly breaking news Twitter feeds from traditional media sources, prices begin to move

Polls to probabilities: comparing prediction markets and opinion polls

Forecasting election outcomes is a hugely popular activity, and not without reason: outcomes can have significant economic impacts, for example on stock prices. As such, it is economically important, as well as of academic interest, to determine the forecasting methods that have historically performed best. However, forecasts are often incompatible, as some are in terms of vote shares, and others are probabilistic outcome forecasts. In this paper we set out an empirical method for transforming opinion poll vote shares into probabilistic forecasts, and then evaluate the performance of prediction markets and opinion polls. We compare along two dimensions: bias and precision. We find that converted opinion polls perform well in terms of bias, and prediction markets on precision

High court of justice

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The US Supreme Court and the 'Affordable Care Act': an exercise in closed-door forecasting

Forecasting voting outcomes has a long history, particularly in the case of US presidential elections and papal elections. The difference between these types of voting is that the former is open to a very large number of electors and to public scrutiny while the latter is closed, in the sense of a small number of decision-makers whose choices are shrouded in layer of secrecy. This paper examines the second type of decision-making, using the 2012 US Supreme Court consideration of the Affordable Care Act to assess the relative efficacy of different methods of forecasting the outcome of these closed decisions in advance of their declaration. While the success rate of each of these methodologies has been somewhat patchy, the degree and detail of information provided by an examination of the various forecasts and the actual outcome of this case provides insights which might usefully improve forecasts of future decisions