Abstract
This paper combines game theory and agent-based modelling, two powerful tools that economists use to understand the behavior of economic agents. We construct an agent-based version of Hotelling’s two-stage game of spatial competition and explore the possibilities of creating synergies between the two approaches. Game theoretic insights into strategic behavior and equilibrium states can provide useful theoretic underpinnings for agent-based approaches in regional science. By combining the two, we can model micro-based social order as it emerges out of local interactions. The use of agent-based modelling in the context of a multistage game is new and hence provides a valuable contribution to both streams of the literature. We show that combining the two approaches is feasible, also in the context of a more complex two-stage game. The model correctly reproduces the analytical results and also allows for more complex situations. As an example, we show the effect of different levels of consumer tastes for variety in Main Street. The reconstruction of Hotelling’s model of spatial competition opens up a wide variety of possibilities for further extensions that can lead to a better understanding of the variations we observe in reality. For some extensions, the use of a single-stage model would probably be more feasible though.
Highlights
Hotelling’s metaphor of spatial competition on Main Street (Hotelling 1929) is widely accepted as one of the most important models in understanding strategic productE. van Leeuwen, M
Since the number of variables as well as the number of equations is equal to the number of players, such a system can be solved by substitution and the Nash equilibrium will be found, provided that it exists
A computational model is capable of overcoming the problem of a discontinuous demand curve, it obviously cannot find the Nash equilibrium if it does not exist
Summary
Hotelling’s metaphor of spatial competition on Main Street (Hotelling 1929) is widely accepted as one of the most important models in understanding strategic product. Ottino et al (2009) developed an agent-based model that uses the concepts of Hotelling in both a one- and a two-dimensional world In this model, the shops change their location to gain market share and change their price to see whether they can improve their profit at that specific location. Our agent-based model goes a step further than the model of Ottino et al (2009), as it aims to capture the full game theoretic nature of Hotelling’s model Since this model is a multistage game, an important challenge is to find a computational alternative for the analytical tools used.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
