Why does the Hotelling paradox tend to happen with monopolistically competitive firms?
HOTELLING’S PARADOX: A principle stating that monopolistically competitive firms seek to maintain similarities between products at the same time they maintain differences. That is, a firm has a small monopoly for its product that allows it to charge a higher price than achieved with perfect competition.
What is the Hotelling effect?
Hotelling’s theory, or Hotelling’s rule, posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments, such as U.S. Treasury or other similar interest-bearing securities.
What is Nash equilibrium in prisoner’s dilemma?
The Nash equilibrium is a decision-making theorem within game theory that states a player can achieve the desired outcome by not deviating from their initial strategy. The prisoners’ dilemma is a common game theory example and one that adequately showcases the effect of the Nash equilibrium.
What is hoteling space?
Hoteling involves pre-booking and checking in to a concierge to access a space, much like at an actual hotel. Even in a room full of empty desks and unoccupied workstations, a person has to check in with central booking to access their spot.
What is Bertrand model and the assumptions behind it?
Bertrand competition is a model of competition in which two or more firms produce a homogenous good and compete in prices. Theoretically, this competition in prices, providing the goods are perfect substitutes, ends with the firms selling their goods at marginal costs and thus making zero profits.
What is Hotelling’s linear city model?
Hotelling’s linear city model was developed by Harold Hotelling in his article “Stability in Competition”, in 1929. In this model he introduced the notions of locational equilibrium in a duopoly in which two firms have to choose their location taking into consideration consumers’ distribution and transportation costs.
What type of model is the Hotelling model?
The model is based on a linear city that consists of only a single straight street. For a better comprehension, Hotelling’s model is sometimes explained by using the example of a beach were two ice cream stands are trying to decide the best location. Static model.
What would happen if both stands’ prices were equal?
If both stands’ prices were equal, the differential factor would be how close consumers are to each stand. All consumers located to the left of a would go to stand A, and all consumers located to the right of 1-b would go to stand B. The remaining consumers, located between both stands would go to whichever is the closest.