

No. 2692

HOTELLING'S LAW by Andrew Boyd

Today, we meet in the middle. The University of Houston’s College of Engineering presents this series about the machines that make our civilization run, and the people whose ingenuity created them.

H arold Hotelling was an accomplished economist. Trained in mathematics, he participated in the early twentieth century movement to mathematize economics. Yet, he’s perhaps best known for some simple yet profound observations, one of which is now known as Hotelling’s Law.

Hotelling’s Law can be illustrated with an example. Imagine a stretch of beach a mile long on which two ice cream vendors want to sell ice cream. The flavors they offer and the prices they charge are the same, so sunbathers go to the closest cart. The question for the two vendors is, “where should they set up their carts to get the most customers?”

As objective, outside observers, we can reason that the best solution is for the carts to be stationed a quarter of a mile from opposite ends of the beach. That way, no one has to walk more than a quarter of a mile to get their ice cream. People in the middle will be will be indifferent, since it’s a quarter of a mile to either cart.