What is Harold Hotelling theory?
Hotelling’s theory, or Hotelling’s rule, posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments, such as U.S. Treasury or other similar interest-bearing securities.
What is Ricardian rent?
Like profit, a Ricardian rent is a surplus earning above the costs necessary to deploy and use a resource. Unlike profit, however, it would continue exist in a hypothetical state of equilibrium as long the resource remained scarce. In the eighteenth century, the Physiocrats gave land a special status in the economy.
What is Hotelling’s model of spatial competition?
Hotelling’s spatial competition model is used to explain the existence of sales. It is shown that (1) an equilibrium in randomized strategies exists when a pure strategy equilibrium fails to exist, (2) with more dissimilarity among brands prices are chosen from a wider interval.
What is Hotelling’s theory of locational interdependence?
Locational Interdependence: Theory developed by economist Harold Hotelling that suggests competitors, in trying to maximize sales, will seek to constrain each other’s territory as much as possible which will therefore lead them to locate adjacent to one another in the middle of their collective customer base.
What are the criticism of Ricardian theory of rent?
An important criticism leveled against Ricardian theory of rent concerns the relation between rent and price. According to Ricardo, price determines rent. The higher the price of corn, the higher will be the rent. The price of corn is determined by the cost of producing corn on the marginal land which is rent-free.
What are the assumptions of Ricardian theory of rent?
The Ricardian theory is based on the assumption that lands differ in fertility. None can deny this but to say that more fertile lands earn high rents and less fertile lands earn low rents is not true. Rent arises not because of the fertility of land, but because land is scarce in relation to its demand.
What is Hotelling location model?
Hotelling’s Location Model. In 1929, Hotelling developed a location model that demonstrates the relationship between location and pricing behavior of firms. He represented this notion through a line of fixed length.
What is the Nash equilibrium is the Hotelling model?
The standard Hotelling model involves two vendors selling an identical product and choosing to locate on a line. Both charge the same price. People along the line buy from the closest vendor. The Nash equilibrium for the standard model involves both sellers locating in the middle.
What is Bertrand model and the assumptions behind it?
Bertrand competition is a model of competition in which two or more firms produce a homogenous good and compete in prices. Theoretically, this competition in prices, providing the goods are perfect substitutes, ends with the firms selling their goods at marginal costs and thus making zero profits.
What does Hotelling’s model emphasize the role of?
Theory developed by economist Harold Hotelling that suggests competitors, in trying to maximize sales, will seek to constrain each other’s territory as much as possible which will therefore lead them to locate adjacent to one another in the middle of their collective customer base.
How is the locational interdependence theory used?
When a business depends on geographic proximity to such things as other businesses, attractions or transportation routes to stay in business, and/or its customers want or need the company in a specific area, the parties create locational interdependence.