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Herding versus Hotelling: Market Entry with Costly Information

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  • David B. Ridley

Abstract

"Why do businesses such as fast-food restaurants, coffee shops, and hotels cluster? In the classic analysis of Hotelling, firms cluster to attract consumers who have travel costs. We present an alternative model where firms cluster because one firm is free riding on another firm's information about market demand. One consequence of this free riding is that an informed firm might forego a market that it knows to be profitable. Furthermore, an uninformed firm might earn higher profits when research costs are high, because it can credibly commit to ignorance." Copyright (c) 2008, The Author(s) Journal Compilation (c) 2008 Wiley Periodicals, Inc..

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000174.

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Date of creation: 12 Mar 2009
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Handle: RePEc:cla:levarc:814577000000000174

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Cited by:
  1. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2013. "Can Poorly Informed Regulators Hinder Competition?," Working Papers, School of Economic Sciences, Washington State University 2013-3, School of Economic Sciences, Washington State University.
  2. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "When does environmental regulation facilitate entry-deterring practices," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 133-152.
  3. Maximilian Conze & Michael Kramm, 2013. "The Recommendation Effect in the Hotelling Game - A New Result for an Old Model," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0460, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Andrey Zaikin & Ana Espinola-Arredondo, 2012. "The Carrot or the Stick: Water Allocation Strategies for Uzbekistan," Working Papers, School of Economic Sciences, Washington State University 2012-2, School of Economic Sciences, Washington State University.
  5. Mark Armstrong & Steffen Huck, 2011. "Behavioral Economics as Applied to Firms: A Primer," Antitrust Chronicle, Competition Policy International, Competition Policy International, vol. 1.
  6. Aurélie Bonein & Stéphane Turolla, 2007. "Sequential Location under one-sided Demand Uncertainty," Working Papers, LAMETA, Universtiy of Montpellier 07-12, LAMETA, Universtiy of Montpellier, revised Nov 2007.
  7. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2011. "The Informative Role of Subsidies," Working Papers, School of Economic Sciences, Washington State University 2011-10, School of Economic Sciences, Washington State University.
  8. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2011. "Environmental Protection Agencies: Measuring the Welfare Benefits from Regulation under Different Information Contexts," Working Papers, School of Economic Sciences, Washington State University 2011-11, School of Economic Sciences, Washington State University.
  9. Ana Espinola-Arredondo & Esther Gal-Or & Felix Munoz-Garcia, 2009. "When Should a Firm Expand Its Business? The Signaling Implications of Business Expansion," Working Papers, School of Economic Sciences, Washington State University 2008-16, School of Economic Sciences, Washington State University.
  10. Felix Munoz-Garcia & Gulnara Zaynutdinova, 2013. "Capacity Constrained Firms and Expansion Subsidies: Should Governments Avoid Generous Subsidies?," Journal of Industry, Competition and Trade, Springer, Springer, vol. 13(4), pages 563-597, December.
  11. Ana Espinola-Arredondo & Felix Munoz-Garcia & Jude Bayham, 2011. "Promoting Lies through Regulation: Deterrence Impacts of Flexible versus Inflexible Policy," Working Papers, School of Economic Sciences, Washington State University 2011-3, School of Economic Sciences, Washington State University.

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