Have you ever wondered why two competing shops selling (nearly) identical goods are right next to each other on the high street? (Imagine charity shops, sport apparel, antique book stores, etc.) Do you know why different brands choose to make their identically functional products look the same? (Think washing machines, price comparison sites, etc.) Would you like a scientific explanation for why all politicians sound the same??
Economists would forgive me to steal a textbook example but I love illustrating Hotelling's law with ice cream stalls. Imagine a long stretch of beach with an even distribution of sun-worshippers. If you are an entrepreneurial ice-cream vendor, entering the market, you'd probably put your stall bang on in the middle of the beach to make it easier for consumers to reach you. But what happens if another chap comes along?
Harold Hotelling, a US economist (1895-1973) explained that the second vendor, selling identical goods for the same price, would put his stall right next to the first vendor so that they both would be in the middle of the beach. If the second vendor placed himself to the left of the first vendor, in between the end of the beach and his competitor, he would claim the customers in the left corner, divide the market between his stall and the stall of his rival but lose the right side of the beach entirely to his rival, as lazy holiday makers would only walk to the nearest stall. As such, it would always pay the second vendor to move closer to the first vendor so that they split the market between them. Of course, this would only be true for identically priced homogeneous goods, so perhaps imagine bottles of water sold for a rupee on a beach in Goa, rather than ice cream, which could come in different flavours.
Importantly, this law explains why we find similar shops nesting together on the high street, given, of course, that their owners can rent space next to each other. In addition to spatial competition, Hotelling's law also explains why competitors choose to design their products as identical as possible. Radical design (a bright yellow washing machine, anyone?) might attract a consumer or two but the rest of the market would go to the competitor with more "average" design ideas. It's not that the companies don't feel creative, it's just that it's rational for them to be "boring".
Finally, Hotelling's law is most commonly applied to politics. A "left" party never wants to position itself too far left, hungry for "central" voters. Similarly, a "right" party would not want to be perceived as too conservative and will try very hard to appear liberal.
Whether you are heading to the shopping mall or the voting station this weekend, you should be well equipped. Heading for the beach? Don't forget to advise Mr. Whippy on the optimal location.