MENTAL MODEL · M12744

Hotelling's Law

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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

Hotelling's linear city model illustrates that competitors tend to converge toward the center, minimizing differentiation to capture the majority of voters or customers.

SCAFFOLDING EFFECT

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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 …

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Hotelling's model uses a 'linear city' to show that in spatial or attribute space, competitors tend to move toward the center (minimum differentiation), even if this intensifies price competition.

MINIMUM ACTION

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Practice this model in one real situation:

Place products/locations on a one-dimensional spectrum
Assume consumers weigh distance (or preference difference)
Find the Nash equilibrium location/price
Analyze the trend toward clustering.

Check to track your progress (stored locally)

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Source support: Explicit

link
en.wikipedia.orghttps://en.wikipedia.org/wiki/Hotelling%27s_lawZH · Explicit
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