Herding versus Hotelling: Market entry with costly information

Journal Article (Journal Article)

Why do businesses such as fast-food restaurants, coffee shops, and hotels cluster? In the classic analysis of Hotelling, firms cluster to attract consumers who have travel costs. We present an alternative model where firms cluster because one firm is free riding on another firm's information about market demand. One consequence of this free riding is that an informed firm might forego a market that it knows to be profitable. Furthermore, an uninformed firm might earn higher profits when research costs are high, because it can credibly commit to ignorance. © 2008 Wiley Periodicals, Inc.

Full Text

Duke Authors

Cited Authors

  • Ridley, DB

Published Date

  • September 1, 2008

Published In

Volume / Issue

  • 17 / 3

Start / End Page

  • 607 - 631

Electronic International Standard Serial Number (EISSN)

  • 1530-9134

International Standard Serial Number (ISSN)

  • 1058-6407

Digital Object Identifier (DOI)

  • 10.1111/j.1530-9134.2008.00188.x

Citation Source

  • Scopus