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HOTELLING'S “MAIN STREET” WITH MORE THAN TWO COMPETITORS *
Author(s) -
Economides Nicholas
Publication year - 1993
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1993.tb00228.x
Subject(s) - duopoly , subgame perfect equilibrium , oligopoly , economics , space (punctuation) , product differentiation , mathematical economics , competitor analysis , competition (biology) , symmetric equilibrium , microeconomics , incentive , product (mathematics) , nash equilibrium , mathematics , game theory , cournot competition , equilibrium selection , repeated game , computer science , ecology , geometry , management , biology , operating system
. I analyze oligopolistic competition among three or more firms located on Hotelling's (1929) Main Street and show that in contrast with Hotelling's duopoly, the symmetric locational structure supports a noncooperative equilibrium in prices. However, in a two‐stage game of location choice in the first stage, and price choice in the second stage, there exists no subgame‐perfect equilibrium where the whole market is served. This is because, starting from any locational pattern, firms have incentives to move toward the central firm. This strong version of the Principle of Minimum Differentiation destroys the possibility of a locational equilibrium. The results are a direct consequence of the existence of boundaries in the space of location. The sharp difference between these results and those of the standard circular model (whose product space lacks boundaries) shows that the general use of the circular model as an approximation to the line interval model may be unwarranted.