Hotelling's law | Hacker News Reader

Hotelling's law

en.wikipedia.org

57 pointsxoher35 comments

When Blockbuster Vídeo entered the Brazilian market, it seemed every store was located less than one block away from the then current market leader, Hobby Video. One hypothesis was that they bought the same market/demographic data. The other is that Blockbuster never even needed that data - all they had to do was to locate their stores based on Hobby Video's use of the demographic data.

In the US it's the same exact story, except it's with McDonald's and Burger King.

There was (2012) a widely shared 4 minute cartoon about this topic:

https://www.youtube.com/watch?v=jILgxeNBK_8

In the two shops on the street example, Hotelling's explains that while it would better serve the customers to be each located one quarter distance from each end of the street, but that neither shop would risk letting the competitor relocate to capture more of the market.

Can this be expanded to mean that Hotelling's law allows for a third competitor to approach an adjacent pair and simply steal all of the business from one side of the street?

Hotelling's law assumes businesses are mobile, which is why its often characterized as a pushcart or ice cream truck. The business in the middle would want to move to the other side of its neighbor, and the process would repeat.

As such, there's no stable equilibrium in a three-firm Hotelling's law problem.

Does this explain the starbucks across from the starbucks?

Simplest explanation: the first Starbucks had enough business to justify a store twice as large but didn't have room to expand. So they opened a second store across the street.

It also has some other benefits, where you can service traffic coming from different directions. When you drive on the highway and get off on an exit to get gas, most of the time you'll stop at the one on your side of the road so it's easier to get back on the highway. You also avoid having to make traffic modifications to deal with the queue of cars trying to make a left into the Starbucks.

I have yet to see the "shell across from a shell" though. I wonder why?

It happens but in some countries, e.g. the Netherlands, this is unlikely due to the way fuel stop spots are actioned of next to the highway.

I imagine so. I believe most (if not all) Starbucks are franchise stores. Franchise stores -- where the products are indeed identical and not just similar -- are the perfect-case scenario for this effect.

All Starbucks stores in the US are company-owned. They do not franchise.

Why can't one of the pharmacies open up a second store on the other side of their competitor? Then instead of the service areas <-AB->, shop A could have <-ABA->.

Presidential candidates and choices in the "I am thinking of a number between one and ten" game can't expand to second locations, but businesses can. In addition, if the pharmacy can't afford an expansion, a competitor could start up and secure n-1 of B's traffic by being slightly rightmore.

Money, zoning, self-cannibalizing. It's a nice thought outside the box, but irrelevant for the metaphor.

Then B opens another and you get ABAB. It's the same game

I recently started reading a book called "The Joy of Game Theory: An Introduction to Strategic Thinking" which touches on explaining the grouping of similar shops (and politicians tending towards the centre!) as an effect of Game Theory. Very interesting read so far.

Isn't it the same with software? Office suites, map-apps, email-apps, Android (from different vendors), etc. try to more or less mimic the most successful one.

So TL;DR Competition breeds Conformity? Isn't that just another expression of entropy?

Could you expand on this?

Entropy is the idea that all information will become uniformly distributed.

In a market space given enough competition all products become similar.

These are statements of the same fact. Just instead of the universe we look at a market space, time becomes competition, and feature set becomes entropy count.

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