Hotelling's law is an observation in economics that in many markets it is rational for producers to make their products as similar as possible.

For example, suppose there are two shops on a street (the shop being the product), each shop owner wants to maximise market share. To do this each owner locates to a point which will get the most business, so they both locate to the middle of the street, and each gets half the market.

It would be more socially beneficial if the shops separated themselves and moved to one quarter of the way along the street at different ends, but neither shop would be willing to do this independently, as it would then allow the other shop to relocate and capture more than half the market. This phenomenon is present in many markets, particularly in those considered to be primarily commodities, and results in less variety for the consumer.

Businesses in fact follow both product differentiation and Hotelling's law, as contrary as they may seem. Take for example JetBlue. The new startup airline markets itself as a revolutionary type of airline – cheaper airfare, nicer plane, better locations. As JetBlue tries to differentiate its product from its competitors, it also adopts similar flight schedules and similar service.

The observation was made by Harold Hotelling (1895-1973) in an article 'Stability in Competition' in Economic Journal in 1929.

The opposing phenomenon is product differentiation, which is usually considered to be a business advantage if executed properly.