Instability in Non-Price Spatial Competition

Abstract

AbstractThe note analyzes a slightly modified Hotelling model in which two firms, bypaying costs, are allowed to choose multiple store locations. We characterize thecondition under which agglomeration occurs, and show that the principle of mini-mum differentiation never holds when the set up cost of additional store is constantor decreasing in the number of each firm’s total stores.JEL classi cation: C72, D43, L13.Key words: Hotelling model, multiple locations, spatial competition. 1 Introduction The spatial competition model initiated by Hotelling (1929) is widely used in many fieldssuch as industrial organization, regional science, political economics, and so forth. 1 The I am grateful to Michihiro Kandori, Hitoshi Matshushima, Noriaki Matsushima and Daisuke Oyamafor helpful comments. All remaining errors are mine. y E-mail: yyasuda@grips.ac.jp. 1 For the applications in the first two fields, see, for example, Eaton and Lipsey (1989) and Gabszewiczand Thisse (1992). Hotelling (1929) reinterpreted his model to explain the choice of political platformsin party competition, whose idea has been elaborated further by Downs (1957) and others.