Wednesday, March 31, 2004

What do sushi and Howard Dean have in common?

For an ECO110 homework assignment in which students need to find economics in their everyday lives, one student wrote about how there are an inordinate amount of subway-type sandwich shops in downtown La Crosse.

The student showed sparks of genius, anticipating an article written by Harold Hotelling in 1929 ("Stability in Competition," The Economic Journal vol. 39: 41-57).

In the article, Hotelling developed a spatial model of monopolistic competition by talking about hot dog vendors on the beach. Check out the following website for a complete description of the model. Basically it predicts that two vendors on a mile-long beach have an incentive to locate smack-dab in the middle... That is, right next to each other! Essentailly the idea is that each vendor is attempting to get the other vendor's business, and so have an incentive to move closer together.

This explains not only why businesses selling similar products tend to locate near each other, but also why politicians in national elections tend to be more centrist. In an election containing only Democrats (the primary) you would tend to see politicians that are more liberal or "left". They aren't trying to get the support of conservative votors, so in Hotelling's language, they don't have to move closer to the other side of the beach. However, in the national election, they need to court the lefty-conservatives, and hence need to move (politically speaking) toward the center.

Unfortunately for me, that means, that for lunch I can choose between Subway, Erberts and Gerberts, or Jimmy Johns (rather than my true preference, sushi), and in November, I can choose between "Tweedledum and Tweedledee" (in the words of former Alabama Governor George Corely Wallace, the third-party candidate for president in the 1968 election against Nixon and Humphrey).

Key Words: ECO110, ECO308

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