<i>I&#x27;m not sure I buy this because even if a third competitor entered and claimed nearly half of the market, the people far out in the tail of that claimed half would not experience any improvement in service. To them, they would be nearly just as bad off.</i><p>You&#x27;re missing my point.  A rational duopoly <i>which is concerned about the possibility of a third competitor entering the market</i> will avoid satisfying Hotelling&#x27;s law.  It isn&#x27;t the third competitor entering the market which improves things; it&#x27;s the <i>threat</i> of a third competitor entering the market.<p><i>I understand that regulations present their own problems: what stops the duopoly from purchasing regulatory capture and raising barriers to entry?</i><p>That&#x27;s a political problem, not an economic one. ;-)