What Is Hotelling’s 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 Hotelling location model?

In 1929, Hotelling developed a location model that demonstrates the relationship between location and pricing behavior of firms. … In Hotelling’s Location Model, firms do not exercise variations in product characteristics; firms compete and price their products in only one dimension, geographic location.

What is the principle of minimum differentiation?

In economics, the tendency of businesses or products to cluster is known as Hotelling’s law or the principle of minimum differentiation. … Consumers choose products from one of two firms with a mix of features that are closest to their ideal mix.