Hotelling's law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible. This is also referred to as the principle of minimum differentiation as well as Hotelling's "linear city model". The observation was made by Harold Hotelling (1895–1973) in the article "Stability in Competition" in Economic Journal in 1929.
The opposing phenomenon is product differentiation, which is usually considered to be a business advantage if executed properly.
A 1979 Econometrica paper, "On Hotelling's 'Stability in Competition'" by Aspremont, Gabszewicz, and Thisse, argues that while the price competition in Hotelling's paper correctly addressed the Bertrand paradox, explaining how firms can compete in prices and still make positive profits, Hotelling made an error in reasoning in the second part of the paper where he attempts to endogenize the locations of the firms in his model and establishes his "law". The abstract of Aspremont et al. reads: "The purpose of this note is to show that the so-called Principle of Minimum Differentiation, as based on Hotelling's 1929 paper 'Stability in Competition' is invalid."
Read more about Hotelling's Law: Example, Application
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