8/30/2023 0 Comments Game theory hotelling modelThere is a vast literature that discusses extensions of the Hotelling’s original model. The second work, using quadratic transportations costs and the same setup as the original work, introduced the principle of maximum differentiation by showing that the equilibrium in Hotelling’s original model is not stable when firms choose their locations strategically firms tend to locate at the extreme points of the consumers’ population line instead. The first work established the principle of minimum differentiation whereby, if two symmetric firms compete in a linear city and where consumers pay linear transportations costs, then both firms tend to locate in the middle of the consumers’ population line. Two of the most important works on location theory are the linear city model by Hotelling and the work of d’Aspremont et al.
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