The Principle of Minimum Differentiation Revisited: Return of the Median Voter
Nobuyuki Hanaki, Université Nice Sophia-Antipolis, Skema Business School, and Université Côte d'Azur
Emily Tanimura, Université Paris 1
Nicolaas J. Vriend, Queen Mary University of London
School of Economics and Finance Working Paper No. 792, Queen Mary University of London, 2016
[Also appeared as GREDEG Working Papers Series No. 2016-07; and as Documents de travail du Centre d'Economie de la Sorbonne 2016.37]
Full paper (PDF format)
We study a linear location model (Hotelling, 1929) in which n (with n ≥ 2) boundedly
rational players follow (noisy) myopic best-reply behavior. We show through numerical and mathematical
analysis that such players spend almost all the time clustered together near the center, re-establishing
the "Principle of Minimum Differentiation" that had been discredited by equilibrium analyses.
Thus, our analysis of the best-response dynamics shows that when considering market dynamics as well as
their policy and welfare implications, it may be important to look beyond equilibrium analyses.
Nick Vriend, email@example.com
Last modified 2017-02-04