The Principle of Minimum Differentiation Revisited: Return of the Median Voter
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Publisher
Publisher URL
DOI
10.1016/j.jebo.2017.12.014
Journal
Journal of Economic Behavior & Organization
ISSN
0167-2681
Metadata
Show full item recordAbstract
We study a linear location model (Hotelling, 1929) in which n (with n ≥ 2) boundedly rational players follow (noisy) myopic best-reply behavior. We show through numerical and mathematical analysis that such players spend almost all the time clustered together near the center, re-establishing Hotelling's “Principle of Minimum Differentiation” that had been discredited by equilibrium analyses. Thus, our analysis of the best-response dynamics shows that when considering e.g. market dynamics as well as their policy and welfare implications, it may be important to look beyond equilibrium analyses
Authors
VRIEND, NJ; Hanaki, N; Tanimura, ECollections
- Economics and Finance [356]