![]() ![]() ![]() Eventually, the pushcart operators will end up next to each other in the center of the beach. But, each pushcart owner will be tempted to push his cart slightly towards the other, moving the invisible line so that the owner is on the side with more than half the beach. If there is an equal distribution of rational consumers along the beach, each pushcart will get half the customers, divided by an invisible line equidistant from the carts. Each shop will serve half the market one will draw customers from the north, the other all customers from the south.Īnother example of the law in action is that of two takeaway food pushcarts, one at each end of a beach. Hotelling's law predicts that a street with two shops will also find both shops right next to each other at the same halfway point. Two shops: halfway Two pharmacies on the same street, possibly an effect of Hotelling's location competition. However, from the point of view of a social welfare function that tries to minimize the distance that people need to travel, the optimal point is halfway along the length of the street. The shop owner is completely indifferent about the location of the shop since it will draw all customers to it, by default. Each customer will always choose the nearer shop as it is disadvantageous to travel to the farther.įor a single shop, the optimal location is anywhere along the length of the street. If both shops sell the same range of goods at the same prices then the locations of the shops are themselves the 'products'. Both shop owners want their shops to be where they will get most market share of customers. Suppose there are two competing shops located along the length of a street running north and south, with customers spread equally along the street. The opposing phenomenon is product differentiation, which is usually considered to be a business advantage if executed properly. The observation was made by Harold Hotelling (1895–1973) in the article "Stability in Competition" in Economic Journal in 1929. This is also referred to as the principle of minimum differentiation as well as Hotelling's linear city model. Hotelling's law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible. Please help improve this article by introducing citations to additional sources. Relevant discussion may be found on the talk page. This article relies largely or entirely on a single source. ![]()
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