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Equilibrium in Hotelling's Model of Spatial Competition

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  • Osborne, Martin J
  • Pitchik, Carolyn

Abstract

A partly analytical, partly computational approach is used to study mixed strategy equilibria of Hotelling's model of sp atial competition in which each of two firms chooses a location in a line segment and a price. There is a unique (up to symmetry) subgame perfect equilibrium in which the locations choices are pure. In it, t he locations are close to the quartiles of the market, and the suppor t of the equilibrium mixed-price strategy of each firm is the union o f two short intervals. There is also a subgame perfect equilibrium in which the firms randomize over locations. Copyright 1987 by The Econometric Society.

Suggested Citation

  • Osborne, Martin J & Pitchik, Carolyn, 1987. "Equilibrium in Hotelling's Model of Spatial Competition," Econometrica, Econometric Society, vol. 55(4), pages 911-922, July.
    • Handle: RePEc:ecm:emetrp:v:55:y:1987:i:4:p:911-22
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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
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    4. Paul Milgrom & Robert Weber, 1981. "Distributional Strategies for Games with Incomplete Information," Discussion Papers 428R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Gal-or, Esther, 1982. "Hotelling's spatial competition as a model of sales," Economics Letters, Elsevier, vol. 9(1), pages 1-6.
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