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

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  • 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.

Suggested Citation

  • Cowen, Tyler & Tabarrok, Alexander, 1995. "Good Grapes and Bad Lobsters: Applying the Alchian and Allen Theorem," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 253-256, April.
    • 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 18:00:00

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    Cited by:

    1. Goodhue, Rachael E. & LaFrance, Jeffrey T. & Simon, Leo K., 2009. "Wine Taxes, Production, Aging and Quality," Journal of Wine Economics, Cambridge University Press, vol. 4(1), pages 27-45, April.
    2. William L. Anderson & Scott Kjar, 2008. "Can Good Apples Be Mixed with Bad Economics? A Mengerian Critique of the Alchian and Allen Theorem," American Journal of Economics and Sociology, Wiley Blackwell, vol. 67(4), pages 645-660, October.
    3. 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), pages 1-29.
    4. repec:wvu:wpaper:05-11 is not listed on IDEAS
    5. Junichi Minagawa & Thorsten Upmann, 2012. "The Generalized Alchian-Allen Theorem," CESifo Working Paper Series 3969, CESifo.
    6. R. Morris Coats & Gary M. Pecquet & Leon Taylor, 2005. "The pricing of gasoline grades and the third law of demand," Microeconomics 0506006, University Library of Munich, Germany.
    7. Gibson, John & Kim, Bonggeun, 2015. "Hicksian separability does not hold over space: Implications for the design of household surveys and price questionnaires," Journal of Development Economics, Elsevier, vol. 114(C), pages 34-40.
    8. Minagawa, Junichi & Upmann, Thorsten, 2013. "A note on parental time allocation," Labour Economics, Elsevier, vol. 25(C), pages 153-157.
    9. 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.
    10. repec:ebl:ecbull:v:6:y:2008:i:30:p:1-12 is not listed on IDEAS
    11. Minagawa, Junichi & Upmann, Thorsten, 2013. "A conditional demand approach to the Alchian–Allen effect," Economics Letters, Elsevier, vol. 120(3), pages 546-551.
    12. Minagawa, Junichi, 2012. "On Giffen-like goods," Economics Letters, Elsevier, vol. 115(2), pages 282-285.
    13. Solimine, Philip & Isaac, R. Mark, 2023. "Reputation and market structure in experimental platforms," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 528-559.
    14. 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.
    15. T Nesbit, 2007. "Excise Taxation and Product Quality: The Gasoline Market," Economic Issues Journal Articles, Economic Issues, vol. 12(2), pages 1-14, September.
    16. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-887, August.
    17. 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.
    18. 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.

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