JOL-RY.= OF REGIONAL SCIENCE, VOL. 33, -YO. 3, 1993, pp. 303-319 HOTELLING'S ''MAIN STREET" WITH MORE THAN TWO COMPETITORS* Nicholas Economides Stern School ofBusiness, S e x York University, New York, NY 10012 ABSTRACT. I analyze oligopolistic competition among three or more firms located on Hotelling's (1929) Main Srreet and show that in contrast with Hotelling's duopoly, the symmetric locational structure supports a noncooperative equilibrium in prices. However, in a two-stage game of location choice in the first stage, and price choice in the second stage, there exists no subgame-perfect equilibrium where the whole market is served. This is because, starting from any locational pattern, frms have incentives to move toward the central firm. This strong version of the Anciple of Minimum Differentiation destroys the possibility of a locational equilibrium. The results are a direct consequence of the existence of boundaries in the space of location. The sharp difference between these results and those of the standard circular model (whose product space lacks boundaries) shows that the general use of the circular model as an approximation to the line interval model may be unw-arranted. 1. INTRODUCTION Hotelling's (1929) duopoly model of locationally differentiated products has been recently reexamined by D'Aspremont, Gabszewicz and Thisse (1979) and Economides (1984), among others. Similar models with a larger number of firms have been analyzed by Lancaster (1979), Salop (1979), Novshek (1980), and Economides (1983,1989),among others. Problems of nonexistence of a noncooper- ative equilibrium arise in the context of a game of price competition with fixed differentiated products, as firms find it more profitable to undercut their oppo- nents. In a game where h s choose product varieties, expecting to receive the equilibrium profits of the short-run price subgame played for the chosen locations, Hotelling claimed that firms will try to produce extremely similar products. This acclaimed "Principle of Minimum Differentiation" was shown to be incorrect by D'Aspremont et al. (19'79)when consumers have a high reservation price and will buy a differentiated product at any cost. The opposite result, local monopolization *I thank the participants of numerous seminars for their comments. Special thanks to Ralph Braid, Robert Kuenne, ,4ndreu Mas-Colell, and an anonymous referee for valuable suggestions. Financial support from the Sational Science Foundation and the Council for Research in the Social Sciences is gratefully acknowledged. An earlier version of this paper appeared as Discussion Paper No. 294, Department of Economics, Columbia University. Received March 1992; revised July 1992; accepted August 1992. Q The Regional Science Research Institute 1993. Blackwell Publishers, 238 Main Street, Cambndge, MA 02142, USA and 108 Coaley Road, Oxford, OX4 lJF, UK.