The Principle of Minimum Differentiation Revisited: Return of the Median Voter

Open Access

Abstract

We thank participants of the WEHIA meeting in Nice, the SAET conference in Rio de Janeiro and the Asian Meeting of the Econometric Society in Hong Kong, as well as seminar participants at King's College for comments and discussions. Part of this research has benefited from financial support from the French government managed by l'Agence Nationale de la Recherche under Investissements d'Avenir UCAJEDI(ANR-15-IDEX-01). In particular, we thank the UCAinACTION project. ; International audience ; We study a linear location model (Hotelling, 1929) in which n (with n ≥ 2) boundedly rational players follow (noisy) myopic best-reply behavior. We show through numerical and mathematical analysis that such players spend almost all the time clustered together near the center, re-establishing Hotelling's " Principle of Minimum Differentiation " that had been discredited by equilibrium analyses. Thus, our analysis of the best-response dynamics shows that when considering e.g. market dynamics as well as their policy and welfare implications, it may be important to look beyond equilibrium analyses