Hotelling model

A model, proposed by H. Hotelling (Economic Journal 39) of the effect of competition on locational decisions. The model is usually based on two ice-cream salesmen, A and B, on a mile of beach. The cost and choice of ice-cream is the same for each distributor. Buyers are evenly distributed along the beach. The first pattern of market share has the two salesmen positioned so that each is at the centre of his half of the beach and the market is split up evenly. If A now moves nearer to the middle of the beach, he will increase his market share. The logical outcome of this will have both salesmen back to back at the centre of the beach, as long as some customers are willing to walk nearly half a mile for an ice-cream, i.e. that the consumer provides the transport. This analogy indicates that locational decisions are not made independently but are influenced by the actions of others.

Hotelling model