LOCATION IN THE HOTELLING DUOPOLY MODEL WITH DEMAND UNCERTAINTY

Demand uncertainty is introduced into a Hotelling environment with fix ed prices by allowing random shocks to the desirability of the firm's product. Given these random shocks, the choice of location affects the average level of demand as well as the riskiness of demand: reducing the distance to the other firm raises expected demand and payoff but a lso lowers the degree of differentiation between the firms, thus raisi ng demand uncertainty. Risk averse firms will locate away from the cen ter and, depending on degree of risk aversion, markup, and size of the market, may locate on either side of the quartile points.