On Hotelling's Model and Product Horizontal Differentiation

摘要

Many learners hold that Hotelling's model equilibrium is correct only not keeping undercutting and mathematical difficulties in consideration. But even so> its usual demonstration and deduction are not complete. Considering Hotelling model's importance in industry theory, the article would write all the price response functions and profit ones and completely demonstrate its equilibrium position referring to Cournot's pricing strategy and mathematical diagrams. Finally it further explained the economic significance of Hotelling model compared with Bertrand model. The article reached two following conclusions. Firstly, the equilibrium where the duopoly completed with each other in the middle linear city was tenable under the preconditions; secondly, Hotelling model could simulate the duopoly competition course on transportation cost difference and yet could not give full explanation to product marginal utility and other product horizontal differentiation.