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Some Evidence on the Alchian and Allen Theorem: The Third Law of Demand?

Author

Listed:
  • Bertonazzi, Eric P
  • Maloney, Michael T
  • McCormick, Robert E

Abstract

This paper examines empirically the proposition of Armen Alchian and William Allen (1964) that shipping charges induce consumers to opt for higher quality goods. The authors show, in a household productions framework, why this holds whether goods or buyers travel. Using a large sample of individual consumption data for football games, they find that buyers who travel the farthest, purchase the best tickets. In the end, the authors believe that the Alchian and Allen theorem is so broad and pervasive that it qualifies as the third law of demand. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Bertonazzi, Eric P & Maloney, Michael T & McCormick, Robert E, 1993. "Some Evidence on the Alchian and Allen Theorem: The Third Law of Demand?," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 383-393, July.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:3:p:383-93
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    References listed on IDEAS

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    1. Borcherding, Thomas E & Silberberg, Eugene, 1978. "Shipping the Good Apples Out: The Alchian and Allen Theorem Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 131-138, February.
    2. Umbeck, John, 1980. "Shipping the Good Apples Out: Some Ambiguities in the Interpretation of "Fixed Charge"," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 199-208, February.
    3. Kaempfer, William H & Brastow, Raymond T, 1985. "The Effect of Unit Fees on the Consumption of Quality," Economic Inquiry, Western Economic Association International, vol. 23(2), pages 341-348, April.
    4. Gould, John P & Segall, Joel, 1969. "The Substitution Effects of Transportation Costs," Journal of Political Economy, University of Chicago Press, vol. 77(1), pages 130-137, Jan./Feb..
    5. Walter Y. Oi, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(1), pages 77-96.
    6. Morey, Edward R., 1981. "The demand for site-specific recreational activities: A characteristics approach," Journal of Environmental Economics and Management, Elsevier, vol. 8(4), pages 345-371, December.
    7. Morey, Edward R. & Shaw, W. Douglass & Rowe, Robert D., 1991. "A discrete-choice model of recreational participation, site choice, and activity valuation when complete trip data are not available," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 181-201, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Charlotte Emlinger & Viola Lamani, 2020. "International trade, quality sorting and trade costs: the case of Cognac," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 579-609, August.
    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. repec:ebl:ecbull:v:4:y:2006:i:35:p:1-6 is not listed on IDEAS
    4. 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.
    5. Blum, Bianca, 2018. "Ausgestaltung einer Steuerpolitik zur Förderung von LED-Beleuchtung," The Constitutional Economics Network Working Papers 01-2018, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    6. repec:wvu:wpaper:05-11 is not listed on IDEAS
    7. Larry Karp & Jeffrey M. Perloff, 2005. "When Promoters Like Scalpers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 477-508, June.
    8. Junichi Minagawa & Thorsten Upmann, 2012. "The Generalized Alchian-Allen Theorem," CESifo Working Paper Series 3969, CESifo.
    9. Minagawa, Junichi & Upmann, Thorsten, 2013. "A note on parental time allocation," Labour Economics, Elsevier, vol. 25(C), pages 153-157.
    10. Blum, Bianca, 2020. "Fleischbesteuerung in Deutschland - Mengen- oder Mehrwertsteuer? Diskussion und Politische Implikationen," The Constitutional Economics Network Working Papers 01-2020, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    11. Robert Lawson & Lauren Raymer, 2006. "Testing the Alchian-Allen Theorem: A Study of Consumer Behavior in the Gasoline Market," Economics Bulletin, AccessEcon, vol. 4(35), pages 1-6.
    12. 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.
    13. repec:ebl:ecbull:v:6:y:2008:i:30:p:1-12 is not listed on IDEAS
    14. James, Jennifer S., 1999. "Quality Responses to Agricultural Policies," 1999 Annual meeting, August 8-11, Nashville, TN 271488, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Minagawa, Junichi & Upmann, Thorsten, 2013. "A conditional demand approach to the Alchian–Allen effect," Economics Letters, Elsevier, vol. 120(3), pages 546-551.
    16. Minagawa, Junichi, 2012. "On Giffen-like goods," Economics Letters, Elsevier, vol. 115(2), pages 282-285.
    17. 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.
    18. T Nesbit, 2007. "Excise Taxation and Product Quality: The Gasoline Market," Economic Issues Journal Articles, Economic Issues, vol. 12(2), pages 1-14, September.
    19. Saito, Tetsuya, 2007. "Shipping the Good Apples Out: Another Proof with A Graphical Representation," MPRA Paper 1297, University Library of Munich, Germany.
    20. Robert Lawson & Todd Nesbit, 2013. "Alchian and Allen Revisited: Law Enforcement and the Price of Weed," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(4), pages 363-370, December.
    21. 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.
    22. Rojas Christian & Shi Tianji, 2011. "Tax Incidence When Quality Matters: Evidence from the Beer Market," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-35, December.
    23. James, Jennifer S., 1999. "Endogenous Quality And Agricultural Policy Analysis," 1999 Annual meeting, August 8-11, Nashville, TN 21634, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    24. Daniel Bunting & Kevin J. Fox, 2014. "The Impact of Quarantine Policies on the Quality of Imports," Discussion Papers 2014-01, School of Economics, The University of New South Wales.

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