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Hotelling was Right

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  • Dimitrios Xefteris

Abstract

This paper proves existence of a subgame perfect equilibrium in Hotelling's original (unidimensional city, linear transportation costs, uniform distribution of the consumers, two firms with identical and constant marginal cost, perfectly inelastic demand) location–price game such that in the location subgame the location choices of the firms are pure and identical. The result can be extended to variations of the original setup (multidimensional city, nonlinear transportation costs, nonuniform distribution of consumers, many firms with identical and constant marginal costs, two or more firms with nonidentical but constant marginal costs).

Suggested Citation

  • Dimitrios Xefteris, 2013. "Hotelling was Right," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 706-712, December.
    • Handle: RePEc:bla:jemstr:v:22:y:2013:i:4:p:706-712
    DOI: 10.1111/jems.12032
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    References listed on IDEAS

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    1. Grilo, Isabel & Shy, Oz & Thisse, Jacques-Francois, 2001. "Price competition when consumer behavior is characterized by conformity or vanity," Journal of Public Economics, Elsevier, vol. 80(3), pages 385-408, June.
    2. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
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    4. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65(2), pages 135-135.
    5. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
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    7. Todd R. Kaplan & David Wettstein, 2000. "The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(1), pages 65-71.
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    Cited by:

    1. Hinloopen, Jeroen & Martin, Stephen, 2017. "Costly location in Hotelling duopoly," Research in Economics, Elsevier, vol. 71(1), pages 118-128.
    2. Dragone, Davide & Lambertini, Luca, 2020. "Equilibrium existence in the Hotelling model with convex production costs," Regional Science and Urban Economics, Elsevier, vol. 84(C).
    3. John Harter, 2019. "Endogenous Firm Location with a Decreasing Density of Consumers," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(2), pages 35-44, December.
    4. John S. Heywood & Dongyang Li & Guangliang Ye, 2022. "Mixed duopoly under hotelling with convex production costs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(2), pages 487-510, October.
    5. Balart, Pau, 2021. "Semiorder preferences and price-oriented buyers in a Hotelling model," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 394-407.

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