Transportation costs and trade for differentiated agricultural products

The role of transportation cost in international trade had always had a prominent place in economics research. Yet it was barely recognized that many agricultural commodities are quality-differentiated, and as such may be impacted differently by the change in transportation cost. The literature on the impact of per-unit charge on the sales of different qualities in spatially differentiated markets, in the form of the Alchian–Allen theorem and its applications, evolved independently from the international agricultural trade literature. I connect the Alchian–Allen theorem with the law of relative demand for more than two qualities, a case more general than the original proposition, and test empirically the propositions derived in the theoretical section on the example of Japanese imports of three differentiable qualities of imported beef. Both the Alchian–Allen theorem and the substitution effects of the impacts of relative prices on relative demands are shown to hold.