Why Do Competitors Open Their Stores Next To One Another? – Jac de Haan

The video explains Hotelling’s Model of Spatial Competition, which is a theory that describes why similar businesses tend to cluster together in a given area. The theory is based on the idea that businesses will try to locate themselves in a way that maximizes their customer base while minimizing the distance customers have to travel to reach them. The theory is demonstrated through the example of two ice cream vendors at a beach, who both locate themselves in the middle of the beach to maximize their customer base and minimize the distance customers have to travel. As competition increases, the vendors move closer together until they reach a point where neither can improve their position by moving. This point is known as the Nash Equilibrium.