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Good Grapes and Bad Lobsters: Applying the Alchian and Allen Theorem

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Author Info

  • Cowen, Tyler
  • Tabarrok, Alexander

Abstract

The authors consider the well-known theorem of A. Alchian and W. Allen (1964) that adding a per unit charge to the price of two substitute goods increases the relative consumption of the higher price good. The current literature misspecifies the conditions under which the theorem holds. When applying the theorem, the fixed cost should be applied on a per unit basis, rather than in terms of an entry fee for consumption. The authors state the necessary conditions for the theorem to hold when the consumers are shipped to the goods. Copyright 1995 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 33 (1995)
Issue (Month): 2 (April)
Pages: 253-56

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Handle: RePEc:oup:ecinqu:v:33:y:1995:i:2:p:253-56

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  1. Sigara yasağı, uzaktaki aşıklar ve yaşlı nüfusun karbon salınımına etkisi
    by ? in N. Emrah Aydınonat (Türkçe) on 2008-02-23 12:00:00
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Cited by:
  1. Junichi Minagawa & Thorsten Upmann, 2012. "The Generalized Alchian-Allen Theorem," CESifo Working Paper Series 3969, CESifo Group Munich.
  2. Minagawa, Junichi & Upmann, Thorsten, 2013. "A conditional demand approach to the Alchian–Allen effect," Economics Letters, Elsevier, vol. 120(3), pages 546-551.
  3. R. Morris Coats & Gary M. Pecquet & Leon Taylor, 2005. "The pricing of gasoline grades and the third law of demand," Microeconomics 0506006, EconWPA.
  4. Minagawa, Junichi, 2012. "On Giffen-like goods," Economics Letters, Elsevier, vol. 115(2), pages 282-285.
  5. Liu, Liqun, 2011. "The Alchian-Allen theorem and the law of relative demand: The case of multiple quality-differentiable brands," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 52-57, January.
  6. Todd M. Nesbit, 2005. "Excise Taxation and Product Quality: The Gasoline Market," Working Papers 05-11 Classification-, Department of Economics, West Virginia University.
  7. Tetsuya Saito, 2008. "An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n > 0 with Two-Stage Budgeting," Economics Bulletin, AccessEcon, vol. 6(30), pages 1-12.
  8. Rachael E. Goodhue & Jeffrey LaFrance & Leo K. Simon, 2009. "Wine Taxes, Production, Aging and Quality," Working Papers 2009-04, School of Economic Sciences, Washington State University.
  9. Minagawa, Junichi & Upmann, Thorsten, 2013. "A note on parental time allocation," Labour Economics, Elsevier, vol. 25(C), pages 153-157.
  10. Matthew T. Brown & Daniel A. Rascher & Chad D. McEvoy & Mark S. Nagel, 2007. "Treatment of Travel Expenses by Golf Course Patrons: Sunk or Bundled Costs and the First and Third Laws of Demand," International Journal of Sport Finance, Fitness Information Technology, vol. 2(1), pages 45-53, February.
  11. repec:ebl:ecbull:v:6:y:2008:i:30:p:1-12 is not listed on IDEAS
  12. Liu, Liqun & Rettenmaier, Andrew J. & Saving, Thomas R., 2011. "How much and how often: A model of repeated consumption with endogenous consumption frequency," Economics Letters, Elsevier, vol. 110(3), pages 186-188, March.
  13. James, Jennifer S. & Alston, Julian M., 2002. "Taxes and quality: A market-level analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(3), September.

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