Location, Location, Location! A Classroom Demonstration of the Hotelling Model

27 Pages Posted: 8 Feb 2007

See all articles by Lisa R. Anderson

Lisa R. Anderson

College of William and Mary - Department of Economics

Beth A. Freeborn

Bureau of Economics

Jessica Holmes

Middlebury College

Mark Jeffreys

Utah Valley University

Daniel Lass

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

John C Soper

John Carroll University - Boler School of Business

Date Written: December 2006

Abstract

This paper outlines a classroom experiment that complements the standard theoretical discussion of Hotelling's (1929) spatial competition model. The exercises will provide students with a deeper understanding of the intuition behind competitive clustering, resolving the Bertrand paradox, and product positioning. Students act as street vendors operating within a "linear city." Each student chooses the most profitable location, taking into account the locations of competitors and the transportation costs of customers. Other treatments include choosing price given location and a two-stage model of location and price. The experiment can be implemented in any size class, with very little preparation. It is well-suited for courses in microeconomics, industrial organization, game theory, experimental economics, and public choice economics, and can also be incorporated into political science courses.

JEL Classification: A22, C22, C90, D21, L1

Suggested Citation

Anderson, Lisa R. and Freeborn, Beth A. and Holmes, Jessica and Jeffreys, Mark and Lass, Daniel and Soper, Jack, Location, Location, Location! A Classroom Demonstration of the Hotelling Model (December 2006). Available at SSRN: https://ssrn.com/abstract=961889 or http://dx.doi.org/10.2139/ssrn.961889

Lisa R. Anderson (Contact Author)

College of William and Mary - Department of Economics ( email )

Williamsburg, VA 23187-8795
United States

Beth A. Freeborn

Bureau of Economics ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

Jessica Holmes

Middlebury College ( email )

Middlebury, VT 05753

Mark Jeffreys

Utah Valley University ( email )

800 West University Parkway
Orem, UT 84058-5999
United States

Daniel Lass

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-1501 (Phone)
413-545-5853 (Fax)

Jack Soper

John Carroll University - Boler School of Business ( email )

University Heights, OH 44118-4581
United States

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