The Principle of Minimum Differentiation Revisited: Return of the Median Voter

Nobuyuki Hanaki (1) , Emily Tanimura (2) , Nicolaas J Vriend (3)

1 GREDEG - Groupe de Recherche en Droit, Economie et Gestion
2 CES - Centre d'économie de la Sorbonne
3 QMUL - School of Economics and Finance

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 Hotelling's " Principle of Minimum Differentiation " that had been discredited by equilibrium analyses. Thus, our analysis of the best-response dynamics shows that when considering e.g. market dynamics as well as their policy and welfare implications, it may be important to look beyond equilibrium analyses

Mots clés: Stochastic stability; Best-response dynamics; Invariant measures; Hotelling location model; Principle of Minimum Differentiation; Nash equilibrium

Domaines: Economies et finances

Nobuyuki Hanaki, Emily Tanimura, Nicolaas J Vriend. The Principle of Minimum Differentiation Revisited: Return of the Median Voter. Journal of Economic Behavior and Organization, 2019, 157, pp.145-170. ⟨10.1016/j.jebo.2017.12.014⟩. ⟨hal-01714582⟩