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Location, Location, Location! A Classroom Demonstration of the Hotelling Model

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Author Info
Lisa R. Anderson () (Department of Economics, College of William and Mary)
Beth A. Freeborn () (Department of Economics, College of William and Mary)
Jessica Holmes () (Department of Economics, Middlebury College)
Mark Jeffreys () (Behavioral Science Department and Integrated Studies Department, Utah Valley State College)
Dan Lass () (Department of Resource Economics, University of Massachusetts)
Jack Soper () (Department of Economics and Finance, John Carroll University)

Additional information is available for the following registered author(s):

Abstract

This paper outlines a classroom experiment that complements the standard theoretical discussion of Hotelling's (1929) spatial competition model. The exercises will provide students with a deeper understanding of the intuition behind competitive clustering, resolving the Bertrand paradox, and product positioning. Students act as street vendors operating within a "linear city." Each student chooses the most profitable location, taking into account the locations of competitors and the transportation costs of customers. Other treatments include choosing price given location and a two-stage model of location and price. The experiment can be implemented in any size class, with very little preparation. It is well-suited for courses in microeconomics, industrial organization, game theory, experimental economics, and public choice economics, and can also be incorporated into political science courses.

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File URL: http://www.wm.edu/economics/wp/cwm_wp44rev.pdf
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Publisher Info
Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 44.

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Length: 27 pages
Date of creation: 18 Sep 2006
Date of revision: 05 Feb 2007
Handle: RePEc:cwm:wpaper:44

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Postal: P.O. Box 8795, Williamsburg, VA 23187-8795
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Web page: http://www.wm.edu/economics/
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Related research
Keywords: classroom experiment location choice

Find related papers by JEL classification:
A22 - General Economics and Teaching - - Economics Education and Teaching of Economics - - - Undergraduate
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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  1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September. [Downloadable!] (restricted)
  2. Shaked, A, 1982. "Existence and Computation of Mixed Strategy Nash Equilibrium for 3-Firms Location Problem," Journal of Industrial Economics, Blackwell Publishing, vol. 31(1-2), pages 93-96, September. [Downloadable!] (restricted)
  3. S. Huck & W. Müller & N. Vriend, . "The East End, the West End, and Kings Cross: On Clustering in the Four-Player Hotelling Game," Sonderforschungsbereich 373 2000-24, Humboldt Universitaet Berlin.
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  4. Collins, Richard & Sherstyuk, Katerina, 1999. "Spatial Competition with Three Firms: An Experimental Study," Working Papers 1057, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  5. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn. [Downloadable!] (restricted)
  6. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 27-49, January. [Downloadable!] (restricted)
    Other versions:
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