Hotelling's Location Model
In 1929, Hotelling developed a location model that demonstrates the relationship between location and pricing behavior of firms. He represented this notion through a line of fixed length. Assuming all consumers are identical (except for location) and consumers are evenly dispersed along the line, both the firms and consumer respond to changes in demand and the economic environment.
In Hotelling’s Location Model, firms do not exercise variations in product characteristics; firms compete and price their products in only one dimension, geographic location. Therefore, traditional usage of this model should be used for consumers who perceive products to be perfect substitutes or as a foundation for modern location models.
Read more about this topic: Location Model
Famous quotes containing the word model:
“The playing adult steps sideward into another reality; the playing child advances forward to new stages of mastery....Child’s play is the infantile form of the human ability to deal with experience by creating model situations and to master reality by experiment and planning.”
—Erik H. Erikson (20th century)