Hotelling Games with Multiple Line Faults

TL;DR

This paper analyzes a fault-prone version of the Hotelling game on a line, showing how multiple random failures influence the existence, uniqueness, and stability of Nash equilibria, with implications for social costs.

Contribution

It introduces a model of Hotelling games with multiple random line faults, characterizing equilibrium existence, uniqueness, and the stabilizing effect of failures.

Findings

Nash equilibrium exists if fault rate exceeds a threshold

Equilibrium is unique when it exists

Failures can stabilize the game and reduce social costs

Abstract

The Hotelling game consists of n servers each choosing a point on the line segment, so as to maximize the amount of clients it attracts. Clients are uniformly distributed along the line, and each client buys from the closest server. In this paper, we study a fault-prone version of the Hotelling game, where the line fails at multiple random locations. Each failure disconnects the line, blocking the passage of clients. We show that the game admits a Nash equilibrium if and only if the rate of faults exceeds a certain threshold, and calculate that threshold approximately. Moreover, when a Nash equilibrium exists we show it is unique and construct it explicitly. Hence, somewhat surprisingly, the potential occurrence of failures has a stabilizing effect on the game (provided there are enough of them). Additionally, we study the social cost of the game (measured in terms of the total transportation cost of the clients), which also seems to benefit in a certain sense from the potential presence of failures.