They each have their own. Together they share the area between the two shops, which is. Game theorists consider this a socially optimal solution because it minimizes the amount customers must walk to buy the product.
In an ideal world, this would be how companies would decide to choose the locations of their store. We will see why this arrangement does not usually occur in the real world.
While this situation is socially optimal, it is not sustainable because it is not a Nash equilibrium. Imagine that the next day, one of the cousins sets up shop at the halfway point instead of. If this happens, one cousin serves. This means that neither cousin will stand to benefit from changing their current strategy. This situation is no longer a socially optimal solution because customers on the far ends of beach will have to travel far distances for ice cream.
Counteracting this effect, however, is the competition effect , which means that locating close to competitors leads to greater price competition and therefore lower profits and rents. For example, gasoline stations offer extremely homogeneous products and therefore compete intensely on prices, whereas a shoe shop may offer a wide array of different products and therefore price competition is less strong.
In the thesis it is is found that the effect that finally dominates is the agglomeration effect, or in other words, the effect of being located close to similar shops is on average positive for an average retailer. However, the effect of being located close to competitors is expected to differ between different types of retailers. For this reason, this effect was estimated for some selected sectors separately. The net effect of being located close to competitors was negative for supermarkets while for clothing and shoe shops the effect was positive.
This result is in line with the idea that supermarkets offer a generally homogenous basket of products. Moreover, people usually do not go to multiple supermarkets, so the benefits of clustering are expected to be lower. On the other hand, shoe and clothing shops usually offer quite diverse products for example, different market segments, brands, etc.
Another important finding was that for a retailer located in a certain postcode area, there is a negative effect arising when retailers of the same type are located in neighbouring postcode areas.
It is very common with fast food stores, gas stations, banks, mattress stores, coffee shops, pharmacies, large retailers, etc. When competing firms are located close together it is called clustering.
When multiple competitors exist it would make sense, if they were working together, to spread out so that each competitor would have a share of the customer population. So, each competitor will simultaneously make the same decision to move to the best location. Basically, for various population density areas there are only a few maybe only one optimal locations and the mathematics of competition drive all competitors to the optimal location. If a retailer opens a new location away from the current clustering, there are two potential results:.
More than a comment is a question. I am the organizer of a art and craft out door market. Now we have all the vendors mixed. I am proposing that we should have all the painters, ceramist, jewelers, etc clustered, not mixed.
My intention is to attract buyers from wealth neighborhoods interested in fine art at low prices. Please give me your opinion. Your email address will not be published. Notify me of follow-up comments by email.
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