On the Hotelling Principle of Minimum Di¤erentiation: Imitation and Crowd

This paper investigates on price competition in the Hotelling location model with linear transportation costs when consumer preferences are a¤ected by the number of consumers shopping at the same store. A consumption externality permits to consider the imitation and the congestion e¤ects which are opposite forces at work. The coexistence of both e¤ects confers new validity to the principle of minimum di¤erentiation as it was in the original Hotelling model. I show that \u85rms do not need to set apart in order to earn higher pro\u85ts. The results show \u85rms endogenously choose to locate in the center of the interval sharing the market with positive prices