Business C will also choose the midpoint of the larger of the two gaps between the first two businesses.

If business B chooses a point before 1/3 then C will choose a point halfway between B and 1. Business D will choose randomly between the halfway point between A and C or B and C. If x is the location of business B then the area which B will carve out of the circle will be either (1+3x)/8 if D goes between B and C or (1+x)/4 if D goes between A and C. The average of these is (3+5x)/16. The same logic applies if B chooses a point after 2/3.

If business B chooses a point after 1/3 (but before 1/2) then C will choose a point halfway between A and B going the long way and D will choose the halfway point between A and B the short way. This will leave B exactly a 1/4 share of the business. The same logic applies if A chooses a point between 1/2 and just before 2/3.

If B should choose a location at exactly 1/3 then C would choose at 2/3 and D would be indifferent between 1/6, 1/2, and 5/6. B would have a 2/3 chance of having 1/4 of the business share and 1/3 chance of having 1/3, the average being 5/18 =~ 0.27778 .

Thus B should try to maximize (3+5x)/16 without choosing x equal or greater to 1/3. The optimal choice of location would be just a hair short of 1/3 (or just a hair after 2/3). At this point B will have a 50/50 chance at having either 1/4 or 1/3 of the market share for an average of 7/24=~ 0.29166667 of the market share.

Michael Shackleford, A.S.A., 10/20/1998