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

Cowen, Tyler; Tabarrok, Alexander

doi:10.1111/j.1465-7295.1995.tb01860.x

Cited by 34 publications

(24 citation statements)

References 7 publications

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“…These results indicate that golf courses with high greens fees should consider targeting their marketing efforts toward tourists from considerable distances away, perhaps through golf and/or travel magazine advertisements for example, while courses with low greens fees should target local consumers with their marketing efforts, perhaps through local newspaper advertisements and similar marketing channels. In the same light, when creating a bundled package, tourism officials should match golf quality with vacation quality (Cowen & Tabarrok, 1995) and target golf vacationers in a similar fashion, where packages with high costs should be marketed to tourists coming from considerable distances. Golf packages must be created with caution however.…”

Section: Discussion Implications and Conclusionmentioning

confidence: 99%

Treatment of Travel Expenses by Golf Course Patrons: Sunk or Bundled Costs and the First and Third Laws of Demand

et al. 2006

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To attract golf patrons, sport managers must understand consumption patterns of the golfer. Importantly, the treatment of travel costs must be understood. According to the Alchian-Allen (1964) theorem, golfers treat travel costs as bundled costs (third law of economic demand) whereas classical consumer theory indicates that golfers treat travel costs as sunk costs (first law of economic demand). The purpose of this study was to determine if golf patrons treated travel costs as sunk costs or if they treated travel costs as a bundled cost. Data from a survey of course patrons in Ohio support the treatment of travel costs as bundled costs by golf course patrons, especially those classified as tourists. The strong, positive correlation found between distance traveled and the cost of greens fees enables managers to utilize geographic segmentation in choosing to whom to market their course based upon their product's price compared to area competitors. Outdoor enthusiasts visit Ohio each year in order to participate in activities like hunting, fishing, camping, and sport. In particular, golfers represent an important and growing segment of the tourism market in Ohio. The state boasts more than 750 public and private golf courses, ranking sixth nationally in the number of private courses and sixth in public courses. Of these courses, a majority (555) had open access, with 77% of these courses under private ownership and 23% under public ownership. The remaining courses had restricted access as they were owned by members clubs (National Golf Foundation, 2003). Further, in 2002, there were over 37 Keywords:

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Section: Discussion Implications and Conclusionmentioning

confidence: 99%

Treatment of Travel Expenses by Golf Course Patrons: Sunk or Bundled Costs and the First and Third Laws of Demand

et al. 2006

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“…The analysis of such cases would seem to depend on the extent to which purchases of the higher-and lower-quality versions of the good in question respond to changes in the price of a third good (airline tickets, say). Indeed, Cowen and Tabarrok (1995) argue that the Alchian and Allen theorem may not hold when a product with two quality grades is bundled with some other good. However, Umbeck (1980) and, more recently, Bertonazzi et al (1993) reach the opposite conclusion, namely, that the theorem helps explain some common forms of commodity bundling.…”

Section: Shipping the Good Apples Outmentioning

confidence: 99%

On the Third Law of Demand

2003

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The Alchian and Allen theorem predicts that it will be harder to find “good” apples in the State of Washington, a prime apple‐growing region, than in, say, New York City, where the addition of shipping charges makes “bad” apples comparatively more expensive. We recast the theorem as a testable proposition by explicitly taking the supply side into account and identifying plausible scenarios in which a fixed cost either has no effect on the relative prices of high and low quality grades of the same good in distant markets or, indeed, causes more of the bad apples to be shipped out.

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“…There are at least two papers with empirical content: Kaempfer and Brastow [1985] and Umbeck and Staten [1989]. See also Cowen, Taborrok, and Poitras [1990]. finally, the very nature of the proposition makes it difficult to test directly.…”

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confidence: 99%

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

Bertonazzi¹,

Maloney²,

McCormick

1993

Economic Inquiry

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This paper examines empirically the Alchian and Allen proposition that shipping charges induce consumers to opt for higher quality goods. We 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, we find that buyers who travel the farthest, purchase the best tickets. In the end, we believe that the Alchian and Allen theorem is so broad and pervasive that it qualifies as the third law of demand.

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

Cited by 34 publications

References 7 publications

Treatment of Travel Expenses by Golf Course Patrons: Sunk or Bundled Costs and the First and Third Laws of Demand

Treatment of Travel Expenses by Golf Course Patrons: Sunk or Bundled Costs and the First and Third Laws of Demand

On the Third Law of Demand

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

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