TITLE:
Instability in the Hotelling’s Non-Price Spatial Competition Model
AUTHORS:
Yosuke Yasuda
KEYWORDS:
Hotelling Model; Multiple Locations; The Principle of Minimization
JOURNAL NAME:
Theoretical Economics Letters,
Vol.3 No.3A,
June
18,
2013
ABSTRACT:
This note analyzes a slightly modified
Hotelling model in which two firms are allowed to choose multiple store locations.
Each firm can endogenously choose the number of stores while opening a store
incurs a set-up cost. We show that the principle of minimum differentiation, i.e., both firms open a store each on
the center, never holds when the set-up cost is decreasing in the number
of stores. Under general cost functions that include non-linear and asymmetric
set up costs, we characterize the conditions under which the principle holds.
General payoff functions that are non-linear in the market share are also
considered.