Hotelling's law

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The law of minimal differentiation. Hotelling originally analysed the location choice of two competing suppliers of a product and concluded that the equilibrium would have both competitors located next to each other with minimum differentiation. The law has been widely applied to firm location, product selection, and political economy. Consider two political parties choosing their location on the left–right spectrum. Assume the preferences of voters are distributed evenly along this spectrum. If one party chooses an extreme left position then the other party can secure a majority by locating just to its right. The converse holds for any position except the centre, so the only equilibrium has both parties located at the centre.

Subjects: Economics.

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