Question

Assume that voters are uniformly distributed along a straight line from “far right” to “far
left” (however you want to describe each). We have seen that Hoteling’s model predicts
that candidates in a two-party system will be positioned in the center. Moreover this
would imply policies coming out of a two-party system will be somewhere in the middle.
What happens if a viable third party / third candidate is inserted into the mix? What is the
equilibrium then?
(Assume that no candidate/party is driven by ideology, each only cares about the share of vote).

Answer 1

This model is the example of hotelling model, where there are two types of components, main component and the peripheral component. Both of these are very important and indispensable for the consumption.

In hotelling model , there are two first parties that is the incumbent firms, and the third party that is the potential entrant that would supply only the peripheral one. The entry of the third party is possible only when the peripheral component is sufficiently differentiated.

The entry of the potential form will not harm the incumbent. further it can even be beneficial when the entrant captures consumers that were not participating in the market as it generate additional demand for the incumbent.

Ultimately the entry of an efficient potential entrant may be significant for the society and can increase the consumer surplus.

This kind of equilibrium is called spatial equilibrium in political system.it is when established parties choose their platform competitively while rationally anticipating entry of vote maximizing third party.

ultimately the resulting equilibrium is substantially different from hotelling median equilibrium. The already established parties are spatially separated and the third party will generally lose the election.

We can say this is a kind of stability of two party system where there is non cooperative behaviour between established parties and it can even prevent the third party from winning.