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There is a game theory course on itunes U that covers this more in depth during one of the first lectures - worth taking a look at if anyone is interested in delving deeper into this sort of thing.
One of these? http://www.academicearth.org/lectures/search/game%20theory/
Earlier quoted context omitted.
If only they developed an on-line store and a delivery mechanism. It would be the optimal solution from the customer perspective (price, feature and distance). Thanks in part to the ubiqutious internet.
You might be making a joke, but you also might have something here. If you can get GPS coordinates localized down to 5 meters, then you can have a mobile app that will let you place orders in places like public parks and on the beach. The app would look up vendors in the same location who are currently "open", and present virtual storefronts for them. The app would send the name, the precise GPS coordinates and, at t…
Economics should always be applied to real life with many caveats. It's been a while since I took my semesters of game theory but here's some brief problems with real life applications.
One dangerous assumption in the hoteling model is that there are no costs to changing your position. That is, the two parties will keep relocating until they're at the Nash equilibrium (neither party can benefit from relocating). This is just plain wrong in real life. Political candidates lose a lot of credibility when they reverse stances on something. It is true that after primaries, candidates then to become more moderate but most other applications of hoteling are dangerous. (Edit: same goes for changing marketing stances, product positioning, pricing... etc.)
Removing relocation/repositioning costs illuminates another unrealistic assumption: there are only two players. If you have huge costs to relocating then you don't want to allow a competitor to come in and take your half of the market because he positioned himself right next to you (i.e. M, N, O). If you add in these two assumptions, players might actually want to have an agreement to separate such that any new entrant would not be able to gain as much profit as they are currently making (while still each controlling 1/2, (i.e. at .33 and .66 on the spectrum or something).
A third assumption is that it is a one dimensional world or that consumers judge choices only along one spectrum. If you add in that another competitors could compete not just on the "beach"... Or if a competitor could differentiate itself on a topic that consumers care about more (not all spectrums made equal)... Or spectrums change, the median consumer could shift from one year to another.
I could go on but the point is to not assume the can opener. In entrepreneurial terms, maybe all the competitors out there are "hoteling," could that be justification to be different? Purple Cow? Or maybe it is better to make a few consumers love you than many to just like you.
Otherwise known as The Price is Right Asshole Bidding Theory: the same bid plus one.
Care to elaborate?
Three men went off on a sailboat together, a physicist, a chemist, and an economist. Unfortunately they ran into a storm and the boat was wrecked on an uninhabited island. The only food they were able to rescue from the wreckage was a case of baked beans. As they got hungry, they began to wrestle with the problem of how to open the bean cans. The physicist said "I'll climb a tree and throw a can onto a rock and it'll…
Three men went off on a sailboat together, a physicist, a chemist, and an economist. Unfortunately they ran into a storm and the boat was wrecked on an uninhabited island. The only food they were able to rescue from the wreckage was a case of baked beans. As they got hungry, they began to wrestle with the problem of how to open the bean cans. The physicist said "I'll climb a tree and throw a can onto a rock and it'll…
As a meta-comment, I liked your points but please hold the "humourous" story opener - we shouldn't need tricks to be engaged or convinced by your argument.
An antique seller has a a shop downtown. A second antique shop next door, and his business drops. Then a third antique shop opens across the street, the neighboorhood becomes 'the antique district', and business booms for all three.
Three men went off on a sailboat together, a physicist, a chemist, and an economist. Unfortunately they ran into a storm and the boat was wrecked on an uninhabited island. The only food they were able to rescue from the wreckage was a case of baked beans. As they got hungry, they began to wrestle with the problem of how to open the bean cans. The physicist said "I'll climb a tree and throw a can onto a rock and it'll…
Three men went off on a sailboat together, a physicist, a chemist, and an economist. Unfortunately they ran into a storm and the boat was wrecked on an uninhabited island. The only food they were able to rescue from the wreckage was a case of baked beans. As they got hungry, they began to wrestle with the problem of how to open the bean cans. The physicist said "I'll climb a tree and throw a can onto a rock and it'll…
*The second major problem which this model does not suffer though is that when your model gets closer to reality, its predictions become highly dependent on many coefficients the true values of which you do not know most of the time.
While the walking distance is not optimal, there is an upside. The ice cream vendors will be driven to differentiate their ice cream lines, and the beach dwellers will be able to comparison shop without walking halfway across the beach.
Hm, while reading the article I noticed an interesting aside of this theory, similarly to yours: Assume it is correct, then your need to compete will make all the difference it takes: Have double the amount of helpers so as to reduce waiting times (in the political analogy one could double the supporters to increase "fishing" returns). Differentiating the ice cream lines is in the same league. What this effectively m…