Location, Location, Location! A Classroom Demonstration of the Hotelling Model
This paper outlines a classroom experiment that complements the standard theoretical discussion of Hotelling's (1929) spatial competition model. The exercise provides 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 a 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 also can be incorporated into political science courses.
|Date of creation:||18 Sep 2006|
|Date of revision:||05 Feb 2007|
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- Steffen Huck & Wieland Müller & Nicolaas J. Vriend, 2000.
"The East End, the West End, and King's Cross: On Clustering in the Four-Player Hotelling Game,"
409, Queen Mary University of London, School of Economics and Finance.
- Steffen Huck & Wieland M¸ller, 2002. "The East End, the West End, and King's Cross: on Clustering in the Four-Player Hotelling Game," Economic Inquiry, Western Economic Association International, vol. 40(2), pages 231-240, April.
- Huck, Steffen & Müller, Wieland & Vriend, Nicolaas J., 2000. "The East End, the West End, and King's Cross: On clustering in the four-player hotelling game," SFB 373 Discussion Papers 2000,24, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Huck, S. & Müller, W. & Vriend, N.J., 2002. "The East End, the West End and King's Cross : On clustering in the four-player Hotelling game," Other publications TiSEM 1e3e12cd-ae62-49dc-8f43-1, Tilburg University, School of Economics and Management.
- Luís M. B. Cabral, 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, March.
- Shaked, A, 1982. "Existence and Computation of Mixed Strategy Nash Equilibrium for 3-Firms Location Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 93-96, September.
- B. Curtis Eaton & Richard G. Lipsey, 1975.
"The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition,"
Review of Economic Studies,
Oxford University Press, vol. 42(1), pages 27-49.
- B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers 87, Queen's University, Department of Economics.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, .
"On Hotelling's "Stability in competition","
CORE Discussion Papers RP
385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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