Spatial competition with three firms: an experimental study

Abstract

The paper reports the results of an experimental study of the three firm location problem. We compare the subjects' behavior in the experiments with the symmetric mixed strategy Nash equilibrium calculated by Shaked (1982).Overall, the findings are consistent with the equilibrium prediction. However, the subjects' locations were significantly more dispersed than predicted by the theory. Three alternative explanations of this phenomenon -inexperience, approximate equilibrium behavior and risk aversion -are suggested and evaluated for their predictive power. Special attention is paid to risk aversion.

Hotelling revisits the lab: equilibration in continuous and discrete time

“…Shaked (1982) finds a unique mixed strategy equilibrium in which players randomize uniformly over the second and third quartiles. Collins and Sherstyuk (2000) find little support for Shaked's equilibrium hypothesis.…”

“…Brown- Kruse et al (1993) and Brown Kruse and Schenk (2000) investigate a duopoly model with varying customer densities over a finite one-dimensional action space. Collins and Sherstyuk (2000) look into a three-agent model with inelastic demand and uniform prices. There exists no pure-strategy equilibrium in this set-up (Eaton and Lipsey 1975).…”

The East End, the West End, and King's Cross: On Clustering in the Four‐player Hotelling Game

“…Brown-Kruse et al (1993) and Brown-Kruse and Schenk (1999) study models with elastic demand, while Collins and Sherstyuk (2000) focus on the simpler casewhich we address, too-where demand is inelastic.…”

Spatial competition and agglomeration in the visitor attraction sector

“…There is substantial literature on this issue dating from Hotelling (1929), who argued that firms competing on the basis of prices tend to locate far from each other, whereas firms competing in quantities tend to agglomerate at the centre of the market. Previous studies (Collins & Sherstyuk, 2000;Kim, Lozano-Vivas, & Morales, 2007;Ning & Haining, 2003;Plummer, 1996;Rushton & Thill, 1989;Williams & Kim, 1990) present neoclassical models of spatial competition, proposing development of formal models for a limited range of institutional structures: spatial price, equilibrium, oligopolistic competition and monopolistic competition. Others have studied spatial competition in context of the labour market and its effect on wages and unemployment (Nakagome, 1986), and in the context of the advantages of distant firms in exploiting local monopolies economies versus agglomeration economies that may offset harmful competition effects (Tsang and Yip, 2009).…”