The photo shows Dudley’s high street, a town in Cumbria. Two fruit stalls, both right next to each other in the centre of the high street, are both selling identical fruits at the exact same price, for example a box of peaches is £1.
This illustrates Hotelling’s law, where two producers, whilst trying to maximise their market share, position themselves directly adjacent to each other, thus the first stall serves half the consumers on the high street, and the second stall the other half.
Only when the stalls are right next to each other is Nash Equilibrium reached, as no further action can be taken by either to increase their welfare. This is opposed to if one stall was positioned a quarter of the way of the high street from the left, and the other a quarter way of the high street from the right- a socially optimum solution, as this would minimise the distance any consumer would have to walk to buy fruits.
The fruits sold at either store are perfect substitutes (homogenous), causing the price elasticity of demand for the fruits to be highly price elastic in demand. Decreasing the fruits’ prices will maximise the stalls’ revenues.
