How does Hotelling's model of spatial competition predict retailer location choices?

• A. Retailers avoid competition by locating far from markets.
• B. Retailers spread out evenly to avoid competition.
• C. Retailers cluster near the center or sit equidistant to capture market share and minimize travel for consumers.
• D. Retailers locate far from the CBD to reduce land costs.

Answer: (C)

Hotelling's model shows how retailers choose locations when customers are spread along a line and goods are identical. Each retailer wants to minimize how far average customers must travel while also preventing the rival from capturing more market share. Because customers buy from the closest store, the market is split at the midpoint between the two stores. If one retailer moves toward the ends to grab a new slice of customers, the other retailer can respond by moving toward the center, and this back-and-forth ends with both stores locating near the center or at equal distances from the ends. This clustering near the center maximizes overall accessibility for consumers and minimizes travel, which is why the predicted outcome is that retailers cluster near the center or sit equidistant to capture market share.