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

Lisa Anderson (), Beth A. Freeborn, Jessica Holmes (), Mark Jeffreys (), Dan Lass () and Jack Soper ()
Additional contact information
Lisa Anderson: Department of Economics, College of William and Mary
Jessica Holmes: Department of Economics, Middlebury College
Mark Jeffreys: Behavioral Science Department and Integrated Studies Department, Utah Valley State College
Dan Lass: Department of Resource Economics, University of Massachusetts
Jack Soper: Department of Economics and Finance, John Carroll University

No 44, Working Papers from Department of Economics, College of William and Mary

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.

Keywords: classroom experiment; location choice (search for similar items in EconPapers)
JEL-codes: A22 C22 C90 D21 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-geo and nep-ure
Date: 2006-09-18
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http://www.wm.edu/economics/wp/cwm_wp44rev.pdf (application/pdf)

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