Which theory, associated with Harold Hotelling, suggests competitors locate adjacent to one another in the middle of the customer base to constrain each other's sales?

Which theory, associated with Harold Hotelling, suggests competitors locate adjacent to one another in the middle of the customer base to constrain each other's sales?

• A. Hotelling's Law
• B. Thunen Model
• C. Weber's Model
• D. Locational Interdependence Theory

Answer: (D)

The main idea being tested is how rivals’ placement in a market responds to competition. In a simple linear market where customers are spread along a line, two equal competitors maximize their sales by locating as close to the center as possible. If they spread apart, each loses some of the central customers to the other, so moving toward the middle constrains the other and captures the largest share of the market. This tendency to cluster in the center is Hotelling's Law, also called the principle of minimum differentiation. Locational Interdependence Theory is related in that it deals with how one firm’s position affects others, but the specific behavior of adjacent, centered placement to constrain sales is the hallmark of Hotelling's Law. The Thünen model focuses on agricultural land use around a city based on transport costs, and Weber's model emphasizes minimizing transport and production costs for factory location—neither describes the mutual central clustering described here.

The main idea being tested is how rivals’ placement in a market responds to competition. In a simple linear market where customers are spread along a line, two equal competitors maximize their sales by locating as close to the center as possible. If they spread apart, each loses some of the central customers to the other, so moving toward the middle constrains the other and captures the largest share of the market. This tendency to cluster in the center is Hotelling's Law, also called the principle of minimum differentiation. Locational Interdependence Theory is related in that it deals with how one firm’s position affects others, but the specific behavior of adjacent, centered placement to constrain sales is the hallmark of Hotelling's Law. The Thünen model focuses on agricultural land use around a city based on transport costs, and Weber's model emphasizes minimizing transport and production costs for factory location—neither describes the mutual central clustering described here.