Transportation costs and product demand: Wagering on parimutual horse racing

Parimutuel horse-race wagering is in many respects like any other economic good but it differs in one important way from a vast majority of them. Given the present market arrangement, this good cannot be transported to the consumer; instead the consumer must travel to the production site where the good is consumed as it is produced. Thus, transportation costs must play a crucial role in the demand decision for horse-race wagering. The consumers incur not only out-of-pocket expenses for travelling but also the cost of the time required to travel to and to consume the product. Moreover, consumers incur differential costs in obtaining the same product because of their locational differences. Wagering demands are theorized to be the consequence of the choice of utility maximizing consumers which incorporates this special characteristic of the product. Models for parimutuel horse-race wagering are then estimated both for thoroughbred and for harness horse racing in the state of New Jersey. It is found that both harness and thoroughbred horse-race wagering are sensitive to travelling costs and both can be increased by reducing the costs per visit to wagering sites. These costs can be lowered by reducing the travelling distance of the consumers to the wagering sites. This can be achieved by increasing the number of racing days or by simply reallocating a given number of racing days among different locations. It can also be achieved by increasing the number of wagering sites and locating them strategically. It is interesting to see that travelling distance declines non-linearly as the number of racing days and/or the number of sites is increased and the decline is insignificant as the number of racing days and/or the number of sites is increased beyond a saturation point. The unique construction of travelling costs allows investigation of wagering impacts of an introduction of a new wagering site or an elimination of an existing one.