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The East End, the West End, and King's Cross: On Clustering in the Four-Player Hotelling Game

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  • Steffen Huck

    (Royal Holloway College, University of London)

  • Wieland Müller

    (Humboldt University Berlin)

  • Nicolaas J. Vriend

    () (Queen Mary and Westfield College, University of London)

Abstract

We study experimentally a standard four-player Hotelling game, with a uniform density of consumers and inelastic demand. The pure strategy Nash equilibrium configuration consists of two firms located at one quarter of the ``linear city'', and the other two at three quarters. We do not observe convergence to such an equilibrium. In our experimental data we find three clusters. Besides the direct proximity of the two equilibrium locations this concerns the focal mid-point. Moreover, we observe that whereas this mid-point appears to become more notable over time, other focal points fade away. We explain how these observations are related to best-response dynamics, and to the fact that the players rely on best-responses in particular when they are close to the equilibrium configuration.

Suggested Citation

  • 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," Working Papers 409, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp409
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    Cited by:

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    2. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    3. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    4. Bonein, Aurélie & Turolla, Stéphane, 2017. "Spatial competition with demand uncertainty: A laboratory experiment," Working Papers 266260, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    5. Orzen, Henrik & Sefton, Martin, 2008. "An experiment on spatial price competition," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 716-729, May.
    6. Gaëtan Fournier & Marco Scarsini, 2014. "Hotelling Games on Networks: Efficiency of Equilibria," Post-Print halshs-00983085, HAL.
    7. Dimitrios Xefteris & Iván Barreda-Tarrazona & Aurora García-Gallego & Nikolaos Georgantzis, 2018. "Catalog Competition: Equilibrium Characterization and experimental evidence," Working Papers 2018/08, Economics Department, Universitat Jaume I, Castellón (Spain).
    8. Lisa R. Anderson & Beth A. Freeborn & Jessica Holmes & Mark Jeffreys & Dan Lass & Jack Soper, 2006. "Location, Location, Location! A Classroom Demonstration of the Hotelling Model," Working Papers 44, Department of Economics, College of William and Mary, revised 05 Feb 2007.
    9. Wilfred Amaldoss & Woochoel Shin, 2011. "Competing for Low-End Markets," Marketing Science, INFORMS, vol. 30(5), pages 776-788, September.
    10. Curtis Kephart & Daniel Friedman, 2015. "Hotelling revisits the lab: equilibration in continuous and discrete time," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(2), pages 132-145, December.
    11. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    12. Aurélien Nioche & Basile Garcia & Thomas Boraud & Nicolas Rougier & Sacha Bourgeois-Gironde, 2019. "Interaction effects between consumer information and firms' decision rules in a duopoly: how cognitive features can impact market dynamics," Palgrave Communications, Palgrave Macmillan, vol. 5(1), pages 1-11, December.
    13. Hanaki, Nobuyuki & Tanimura, Emily & Vriend, Nicolaas J., 2019. "The Principle of Minimum Differentiation revisited: Return of the median voter," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 145-170.
    14. Barreda-Tarrazona, Iván & García-Gallego, Aurora & Georgantzís, Nikolaos & Andaluz-Funcia, Joaquín & Gil-Sanz, Agustín, 2011. "An experiment on spatial competition with endogenous pricing," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 74-83, January.
    15. Camacho-Cuena, Eva & Garcia-Gallego, Aurora & Georgantzis, Nikolaos & Sabater-Grande, Gerardo, 2005. "Buyer-seller interaction in experimental spatial markets," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 89-108, March.
    16. Christian Ewerhart, 2014. "Mixed equilibrium in a pure location game: the case of n ≥ 4 firms," ECON - Working Papers 168, Department of Economics - University of Zurich.
    17. Bol, Damien & Matakos, Konstantinos & Troumpounis, Orestis & Xefteris, Dimitrios, 2019. "Electoral rules, strategic entry and polarization," Journal of Public Economics, Elsevier, vol. 178(C).

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    More about this item

    Keywords

    Location model; Nonconvergence; Focal point; Best-response dynamics;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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