The Danish manager argues that, considering the Reds' hefty spending on Stewart Downing and Jordan Henderson, his midfield star could justifiably exceed their prices
As Goal.com exclusively revealed in July, Brendan Rodgers' side are close to securing the 22-year-old for a fee in the region of £13.5m.
But Liverpool's much-talked-about overspending on the likes of Stewart Downing, Andy Carroll and Jordan Henderson over past transfer windows makes the Dane feel like such a deal would represent a bargain.
"He is worth a lot of money because he's a good player," Laudrup told the press.
"The manager knows him and knows if he wants to change the way Liverpool play he needs a player in the midfield like Joe Allen.
"But he also knows he's very, very expensive. We saw they bought a couple of midfielders in the last few years for a lot of money but, with all due respect, Joe is on a level above.
|3.25||Swansea are 3.25 with bet365 to be relegated from next season's Premier League|
"In my opinion, if one is worth £17m then Joe is worth more, perhaps over £20m. I'm talking as a football man, not as a chairman, but if the chairman asks my advice then I will tell him the same."
Some reports have suggested that Liverpool could offer youngster Jonjo Shelvey on loan as a sweetener to secure Allen, but Laudrup feels that only a first-choice Reds player could benefit his side.
"If we could have [Luis] Suarez..." he mused.
"We have good players here and they have good players, but I can't see a player not in the starting XI at Liverpool being in the starting XI in our team.
"They might want to do it because they can pay less money."
While the Allen saga continues, Laudrup is working on two purchases of his own to bolster the Swans' forward line.
"One is quite close but the other one is more difficult," he revealed, "but I hope he will be an important player for us. He is playing at quite a big club so it's not that easy.
"They are both offensive players. One can defend as well.
"We are also working on other alternatives."