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Hotelling’s Location Game.

Two sellers compete for customers spread along one street.

Interactive experimentintuitiveField note ·
Preparing the experiment…
THE SHORT VERSION

Hotelling’s Location Game, explained.

Hotelling's location game explores spatial competition: sellers choose positions partly in response to where customers and competitors are located.

01 / THE MECHANISM

Why it happens

With uniform customers, equal prices, and nearest-shop choice, the midpoint between two shops divides their customers. Moving toward a rival can capture more of one side while reducing geographic separation between options.

Hotelling used spatial competition to study how seller location affects demand when buyers prefer nearby options.

Read the result

Inspect the customer split and the full best-response curve. Holding the rival fixed is different from predicting where both rivals move after responding to one another.

02 / FOLLOW IT THROUGH

A worked example

Two stalls on a 100-unit street

  1. Place shops at 25 and 75 with customers spread uniformly along the street.

  2. Their midpoint is 50, giving each half the customers. Moving the first shop to 49 moves the midpoint to 62.

  3. The moving shop captures a larger side of the street under these assumptions, even though customers may travel differently.

OPTIONAL DEEPER DETAILGo deeper: inside the model

Inside this model

Customers are uniformly spread from 0 to 100 and choose the nearer seller at equal prices. The indifference point is the midpoint of shop locations. Your market share equals the length of street nearer your shop; co-location splits customers evenly. The plot shows your share at each possible location holding the rival fixed.

03 / BEYOND THE EXPERIMENT

Where this idea is useful

A practical use

Two food stalls, clinics, or service outlets may choose locations partly in response to a nearby rival.

CHECK YOUR INTUITION

A common misconception

THE TEMPTING CONCLUSION

“Clustering always gives customers the best locations.”

THE MORE USEFUL DISTINCTION

A seller's market-share incentive and customers' travel costs are different objectives. The simple competition rule need not minimize total travel.

What this explanation leaves out

  • Equal prices, uniform customers, identical quality and pure distance costs are strong assumptions. The chart does not solve a full price-and-location competition model.
ONE MORE QUESTION

Why don't all real shops converge on one point?

Prices, quality differences, uneven customer density, multiple competitors, space constraints, and travel behavior change the incentives. This model fixes those factors to isolate location competition.

TAKE THE IDEA WITH YOU

Does the location that helps one seller also reduce travel for the customers?

Associated thinkers

Further reading

Explore the original research or the teaching reference behind this experiment.