Hotelling meets Weber

In this paper, spatial competition between two sellers in a market (Hotelling, 1929) and total transportation costs minimization (Weber, 1909) are combined, and equilibrium and optimum locations of firms are analyzed along with the consequent policy implications. We show that when the output prices are fixed and equal, both firms agglomerate at the market center, irrespective of the distribution of inputs. Further, we also show that when output price is endogenous, the middle point of firm locations in Hotelling's model is identical to the Weber point. Finally, we show that the locations of Hotelling's firms are far from the socially optimal location.

► Hotelling's spatial competition and Weber's transport cost minimization are combined. ► Under fixed and equal output prices, both firms agglomerate at the market center. ► The midpoint of Hotelling's firm locations is identical to the Weber's point. ► The locations of Hotelling's firms are far from those of the social optimum.