Premium, pertalite or pertamax: an empirical study of Alchian-Allen phenomenon on gasoline consumer behavior

Nur Laila Widyastuti, Djoni Hartono

Abstract


In Indonesia, consumers can choose to consume either high or low quality gasoline based on their preferences. Changing preference to a higher quality that is affected by the declining relative price can lead to an Alchian-Allen (A-A) phenomenon. This study aims to determine whether the A-A Phenomenon occurs on the behavior of consumers before and after the existence of Pertalite. The regression model used is the panel data regressions and the regression result proves that there is an A-A phenomenon in market share in Indonesia before and after Pertalite. This indicates that the high difference of relative prices between high and low quality gasolines has a negative impact towards their relative consumption. Prior to Pertalite, consumers continued changing preference into high quality gasoline in the 2nd and 3rd month intervals when relative price difference decreased. After the existing of Pertalite, consumers did not quickly transfer their preferences from Premium to Pertalite when the relative price declined, so that the A-A phenomenon did not occur in this low and middle grade gasoline consumption pattern. However, Pertamax's consumption to Pertalite increases when the relative price between them declines; thus raising the A-A phenomenon. This implies that the government of Indonesia could use their authority to make arrangements on price differences between gasoline qualities

Keywords


Gasoline, Panel Data, Consumer Behaviour, Alchian-Allen Phenomenon

Full Text:

PDF

References


Alchian, AA & Allen, WR 1964. Exchange and Production; Theory in Use, Wadsworth Publishing Company.

Barzel, Y 1976, 'An alternative approach to the analysis of taxation', Journal of Political Economy, vol. 84, no. 6, pp. 1177-1197.

Bertonazzi, EP, Maloney, MT, & McCormick, RE 1993, 'Some evidence on the Alchian and Allen theorem: the third law of demand?', Economic Inquiry, vol. 31, no. 3, pp. 383-393.

Borcherding, TE & Silberberg, E 1978, 'Shipping the good apples out: the Alchian and Allen theorem reconsidered', Journal of Political Economy, vol. 86, no. 1, pp. 131-138.

Brown, JH & Ressler, RW 2017, 'Terrorism and the Alchian-Allen Theorem', Journal of Applied Business and Economics, vol. 19, no. 9, pp. 99-111.

Coats, RM, Pecquet, GM, & Taylor, L 2005. 'The pricing of gasoline grades and the third law of demand'. Nicholls State University Working Paper, (Microeconomics 0506006).

Cobb, S & Olberding, DJ 2010, 'Shipping the runners to the race: A sport tourism interpretation of the Alchian-Allen theorem', International Journal of Sport Finance, vol. 5, no. 4, pp. 268-279.

Cowen, T & Tabarrok, A 1995, 'Good grapes and bad lobsters: Applying the Alchian and Allen theorem', Economic Inquiry, vol. 33, no. 2, pp. 253-256.

Emlinger, C & Lamani, V 2017, 'International Trade, Quality Sorting and Trade Costs: The Case of Cognac'.

Espey, M 1998, 'Gasoline demand revisited: an international meta-analysis of elasticities', Energy Economics, vol. 20, no. 3, pp. 273-295.

Gilpin, G & Kofoed, M 2015. 'Employer Sponsored Education Asistance and MBA Quality: An Application of the Alchian-Allen Substitution Hypothesis'. SSRN Electronic Journal.

Goodwin, N, Harris, JM, Nelson, JA, Roach, B, & Torras, M 2019. Principles of economics in context, Routledge.

Hastings, J & Shapiro, JM 2012, 'Mental accounting and consumer choice: Evidence from commodity price shocks': National Bureau of Economic Research.

Hughes, J, Knittel, CR, & Sperling, D 2008, 'Evidence of a shift in the short-run price elasticity of gasoline demand', The Energy Journal, vol. 29, no. 1, pp. 93-114.

Hummels, D & Skiba, A 2004, 'Shipping the good apples out? An empirical confirmation of the Alchian-Allen conjecture', Journal of Political Economy, vol. 112, no. 6, pp. 1384-1402.

Larriviere, JB & Biswas, A 2015, 'The Alchian-Allen Effect in Higher Education Revisited: State Lottery Impacts on Public Verses Private Enrollment 1', Journal of Economics and Economic Education Research, vol. 16, no. 1, pp. 89-97.

Lawson, RA & Nesbit, TM 2013, 'Alchian and Allen revisited: law enforcement and the price of weed', Atlantic Economic Journal, vol. 41, no. 4, pp. 363-370.

Lawson, RA & Raymer, L 2006, 'Testing the Alchian-Allen theorem: A study of consumer behavior in the gasoline market', Economics Bulletin, vol. 4, no. 35, pp. 1-6.

Miljkovic, D & Gómez, MI 2019, 'Shipping the good coffee out: the Alchian–Allen theorem and relative demand for Brazilian Arabica and Robusta coffees', European Review of Agricultural Economics, vol. 46, no. 4, pp. 697-712.

Minagawa, J & Upmann, T 2012, 'The Generalized Alchian-Allen Theorem': CESifo Group Munich.

Razzolini, L, Shughart, WF, & Tollison, RD 2003, 'On the third law of demand', Economic Inquiry, vol. 41, no. 2, pp. 292-298.

Saito, T 2007. 'Shipping the good apples out: another proof with a graphical representation'. MPRA Paper.

Sobel, RS & Garrett, TA 1997, 'Taxation and product quality: new evidence from generic cigarettes', Journal of Political Economy, vol. 105, no. 4, pp. 880-887.

Sumner, MT & Ward, R 1981, 'Tax changes and cigarette prices', Journal of Political Economy, vol. 89, no. 6, pp. 1261-1265.




DOI: http://dx.doi.org/10.14414/jebav.v22i2.1697

Refbacks

  • There are currently no refbacks.




Copyright (c) 2019 Journal of Economics, Business & Accountancy Ventura (JEBAV)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

The 6th International Conference on Business and Banking (ICBB) VI

Abstracting & Indexing

 

 

Hasil gambar untuk ccbyncsa

Copyright @ 2010 Pusat Penelitian dan Pengabdian Masyarakat Sekolah Tinggi Ilmu Ekonomi (PPPM STIE)