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The Principle of Minimum Differentiation revisited: Return of the median voter

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  • Hanaki, Nobuyuki
  • Tanimura, Emily
  • Vriend, Nicolaas J.

Abstract

We study a linear location model (Hotelling, 1929) in which n (with n ≥ 2) boundedly rational players follow (noisy) myopic best-reply behavior. We show through numerical and mathematical analysis that such players spend almost all the time clustered together near the center, re-establishing Hotelling's “Principle of Minimum Differentiation” that had been discredited by equilibrium analyses. Thus, our analysis of the best-response dynamics shows that when considering e.g. market dynamics as well as their policy and welfare implications, it may be important to look beyond equilibrium analyses.

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  • 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.
    • Handle: RePEc:eee:jeborg:v:157:y:2019:i:c:p:145-170
    DOI: 10.1016/j.jebo.2017.12.014
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    3. Shuaicheng Liu, 2023. "Location choice with asymmetric data in the Hotelling model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 855-878, December.

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    More about this item

    Keywords

    C72; D72; L13; R30;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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