Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175229
Authors: 
Hanaki, Nobuyuki
Tanimura, Emily
Vriend, Nicolaas J.
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 792
Abstract: 
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.
Subjects: 
Hotelling location model
Principle of Minimum Differentiation
Nash equilibrium
Best-response dynamics
Stochastic stability
Invariant measures
JEL: 
C72
D72
L13
R30
Document Type: 
Working Paper

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