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GOOD GRAPES AND BAD LOBSTERS: APPLYING THE ALCHIAN AND ALLEN THEOREM
Author(s) -
COWEN TYLER,
TABARROK ALEXANDER
Publication year - 1995
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1995.tb01860.x
Subject(s) - economics , consumption (sociology) , mathematical economics , unit (ring theory) , state (computer science) , microeconomics , econometrics , mathematics , philosophy , mathematics education , aesthetics , algorithm
We consider the well‐known theorem of Alchian and Allen 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. We state the necessary conditions for the theorem to hold when the consumers are shipped to the goods.