The pricing of gasoline grades and the third law of demand

R. Morris Coats (), Gary M. Pecquet and Leon Taylor ()
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Gary M. Pecquet: Shenandoah University

Microeconomics from EconWPA

Abstract: Alchian and Allen’s “third law of demand” states that as a fixed cost increases by the same amount for low- and high-quality goods, the ratio of the prices of high- to low-quality goods will fall and the quantity demanded of high quality goods relative to low quality goods will increase. We examine the more general hypothesis by estimating the ratio of the quantities of sales of premium to regular grade gasoline using the ratio of premium to regular prices, controlling for supply and demand factors. We find moderate evidence for the more general hypothesis.

Keywords: Third Law of Demand; Price Ratios; Gasoline Grades (search for similar items in EconPapers)
JEL-codes: D1 D2 D3 D4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2005-06-18
Note: Type of Document - pdf; pages: 17
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0506006

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