Hotelling Model

8 December 2011 at 9:21 pm 6 comments

| Peter Klein |

I often use the Hotelling model in class to illustrate the frequent clustering of firm and product characteristics. The example of firms locating on a street is boring, so I show the student’s Wired’s classic “Battle for Blue.” I think I’ll start using this one now (via Scott Rouse).

Entry filed under: - Klein -, Strategic Management, Teaching.

Disaggregation Strategy and Regulatory Uncertainty

6 Comments Add your own

  • 1. Modelo de Hotelling « De Gustibus Non Est Disputandum  |  9 December 2011 at 5:19 am

    […] exemplo do clássico modelo de Hotelling usando pôsteres de cinema. Share this:FacebookPrintTwitterLike this:LikeBe the first to like this post. […]

  • 2. Rich Makadok  |  9 December 2011 at 6:05 pm

    Peter, please correct me if I’m wrong, but I have been led to believe that Hotelling (1929) misinterpreted the result of his own model. The alleged “minimum differentiation” result is not a valid equilibrium. See:

    D’Aspremont C, Gabszewicz JJ, Thisse J-F. 1979. On Hotelling’s “Stability in Competition”. Econometrica 47(5): 1145-1150.

    — Rich

  • 3. Klein, Peter G.  |  9 December 2011 at 8:46 pm

    Rich, I don’t recall exactly what D’Aspremont et al. showed about Hotelling’s original argument, but you’re right that whether you get Hotelling’s clustering or “maximal differentiation” in a spatial model depends on the shape of the transportation cost function and a bunch of other stuff — you can’t give a general answer. Tirole has a whole chapter on this in his IO textbook.

  • 4. Michael Marotta  |  10 December 2011 at 5:40 am

    The theory seems caught in distinctions without differences, like Japanese beers, Coke and Pepsi, or (now ultimately) Mac versus PC.

    Many brands of clothing – Hollister, Pink, Old Navy, and the many ersatz athletic departments – announce themselves in the same fake fade. How often do you see improbable people sporting NYFD, FBI, and other ball caps. How many colored ribbon decals and rubbery plastic bracelets declare support for charitable social causes? Baseball cards, football cards, … I have seen Famous Police Dogs.

    I ate “jalapeno poppers” at several TGI Tuesdaybees wondering at the hard-working assistants cutting and stuffing and frying peppers by hand before I realized that they all come from the same place in 50-lb. frozen bags.

    Westinghouse’s bayonet light bulbs could be adapted to Edison’s screw fixtures.

    How can conformity not be a natural law, like gravity?

  • 5. Juan M  |  12 December 2011 at 9:28 pm

    Lack of creativity , topic or common place. That ´s all

  • 6. Rafe’s Roundup pre-Christmas edition at Catallaxy Files  |  13 December 2011 at 7:24 am

    […] Peter Klein finds a different example of the Hotelling (clustering) effect in competition. This is a more conventional example, the “battle for blue“. I often use the Hotelling model in class to illustrate the frequent clustering of firm and product characteristics. The example of firms locating on a street is boring, so I show the student’s Wired’s classic Battle for Blue . I think I’ll start using this one now (via Scott Rouse). […]

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