Hotelling Law

The Hotelling rule, also known as the Principle of Minimum Differentiation, is an economic principle that describes how competing firms in a market will choose to locate themselves spatially in order to maximize their profits. The rule was first proposed by economist Harold Hotelling in 1929.The basic idea of the Hotelling rule is that, in a market with two competing firms, each firm will try to locate itself in such a way as to maximize its share of the market. If the firms are selling a homogeneous product (i.e., a product that is the same regardless of who produces it), then they will locate themselves equidistant from the center of the market, as this will result in equal market shares. However, if the firms are selling differentiated products (i.e.,products that are perceived as different by consumers), then they will locate themselves closer to one end of the market in order to differentiate themselves from their competitor. This is because consumers are more likely to choose a product that is closer to their location than one that is farther away. The result of this is that the market will be divided into two distinct regions, with each firm having a monopoly in its respective region.

Questions to answer

1), Briefly explain what the case study is about, summarize it.