Hotelling's Law

Discipline: Economics

Formulated by American economist Harold Hotelling (1895-1973) from his observations on the stability of competition, Hotelling's Law states that competitors differentiate their goods and services as little as possible in order to maximize demand from the public.

The law explains why retailers (department stores, newsagents and restaurants) tend to cluster together, and why airlines adopt similar flight schedules. (Hotelling also proposed the principle of marginal cost pricing.)

H Hotelling, 'Stability in Competition', Economic Journal, vol. xxxix (1929), 41-57


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