GOOD GRAPES AND BAD LOBSTERS - APPLYING THE ALCHIAN AND ALLEN THEOREM

We consider the well-known theorem of Alchian and Alien that adding a per unit charge to the price of two substitute goods increases the rel ative consumption of the higher price good. The current literature mis specifies the conditions under which the theorem holds. When applying the theorem the fixed cost should be applied on a per unit basis, rath er than in terms of an entry fee for consumption. We state the necessa ry conditions for the theorem to hold when the consumers are shipped t o the goods.