In the end, by moving to the middle the vendors haven’t gained anything — they’re still both serving just half of the beach. But look what’s happened to the sunbathers. Now a lot of people have to walk more than a quarter of a mile. Some have to walk as far as half a mile.
Hotelling’s Law states that there’s a natural tendency for competitors to be pulled toward a common middle ground. Ever noticed how refrigerators in the same price range look almost identical from brand to brand? Or why car dealerships all tend to pop up along the same stretch of road? Or even why the menus at McDonalds and Burger King are hard to tell apart.
One of the most commonly pointed to examples of Hotelling’s Law arises in politics. When candidates position themselves too far left or right, they can lose the vote of centrists. So there’s a natural pull toward the middle of the political spectrum. It’s not a hard and fast rule. But it’s certainly something to think about.
I’m Andy Boyd at the University of Houston, where we’re interested in the way inventive minds work.
Notes and references:
For a related episode, see ECONOMICS OF ENVIRONMENT.
There are many good references available describing Hotelling’s Law, which is also known as Hotelling’s Principle, the Principle of Minimum Differentiation, and Hotelling’s Linear City Model. See, for example, D. B. Ridley, Hotelling’s Law. From the Web site: http://faculty.fuqua.duke.edu/~dbr1/research/Hotellings-Law.pdf. Accessed February 23, 2011.
H. Hotelling, 1929. “Stability in competition.” Economic Journal, vol. 39, 41-57.
The picture of the GE and Kenmore refrigerators are from the Web sites of these companies. All other pictures are by E. A. Boyd.
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Copyright © 1988-2011 by John H. Lienhard.