A Noncooperative Analysis of Hotelling's Location Game

We study the location equilibrium in Hotelling's model of spatial competition. As d'Aspremontet al.have shown, with quadratic consumer transportation cost the two sellers will seek to move as far away from each other as possible. We show that the location game possesses an infinity of mixed strategy Nash equilibria. In these equilibria coordination failure invalidates the principle of “maximum differentiation” and firms may even locate at the same point.Journal of Economic LiteratureClassification Numbers: C72, D43, L11.