The purpose of this note is to show that the so-called Principle of Minimum Differentiation, as based on Hotelling's 1929 paper "Stability in Competition" is invalid. The purpose of this note is to show that the so-called Principle of Minimum Differentiation, as based on Hotelling's 1929 celebrated paper (Hotelling [3]), is invalid. Firstly, we assert that, contrary to the statement formulated by Hotelling in his model, nothing can be said about the tendency of both sellers to agglomerate at the center of the market. The reason is that no equilibrium price solution will exist when both sellers are not far enough from each other. Secondly, we consider a slightly modified version of Hotelling's example, for which there exists a price equilibrium solution everywhere. We show however that, for this version, there is a tendency for both sellers to maximize their differentiation. This example thus constitutes a counterexample to Hotelling's conclusions. We shall first recall Hotelling's model and notations. On a line of length , two sellers A and B of a homogeneous product, with zero production cost, are located at respective distances a

The gains from cartel formation and the stability of a dominant cartel are investigated for the price-leadership model. We show that there is a general interest in the establishment of a cartel with the competitive fringe reaping a disproportionate share of the benefits. In contrast to results involving a continuum of firms, with a finite number of firms (each with the same cost curve) there is always a stable dominant cartel.A propos de la stabilité d'une structure de marché caractérisée par la collusion de firmes dominantes pourétablir un leadership de prix. Le mémoireétudie les gains dérivés de la formation d'un cartel et la stabilité d'un cartel dominant dans le cadre d'un modèle de leadership de prix de la firme dominante. On montre qu'il y a un intérêt généralà créer un cartel même si les firmes satellitesà la périphérie du cartel ramassent une part plus que proportionnelle des bénéfices. Contrairementà ce que l'on observe quand on est en présence d'un continuum de firmes, quand leur nombre est fini -chacune avec la même courbe de coûts -il y a toujours un cartel dominant stable.

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