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- Title
Herding versus Hotelling: Market Entry with Costly Information.
- Authors
Ridley, David B.
- Abstract
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.
- Subjects
MANAGEMENT science research; OPERATING costs; SELF-service (Economics); RESTAURANTS &; economics; HOTELS &; economics; LOCATION analysis
- Publication
Journal of Economics & Management Strategy, 2008, Vol 17, Issue 3, p607
- ISSN
1058-6407
- Publication type
Article
- DOI
10.1111/j.1530-9134.2008.00188.x