Site Loader
Rock Street, San Francisco

Futhermore, there
may be some others reason connected to the fact that shops may be located in
the same place. As an example, immagine that you need to purchase a sofa for
your house; there might be three ikea stores around the city. Therefore, the
probability of not getting what you want will be 0.677; however, if two of the
of ikea stores will be exactly in the same location, the probability of getting
what you need will increase to 0.677! The more two shops are closer, the higher
is the probablity that the customer will find what they need; in addition, if
two shops are close one onether, customers will be capable of comparing the
products and decid which would be the best one in order to satify their

The social optimal
solution is where all the agents maximize their utiliy; although this solution
is optimal for the society, the equilibrium we reach is precarius. Infact, one
entrepeunuer would like to the advantage at the expenses of other competitors; susbsequently,
they will move to a situation where both individuals are better. This
particular state of nature is reffered by game theory as Nash Equilibrium. These
two theories can be easily explanied with an example; immagine to have two
shops, which provide the same product. Both of them are located in the same
street and they will place their shops so that the first shop could earn from
the customers coming from the right side of the street whereas the second shop
will get the customers from the other side of the street. As it was already
stated, this is referred as the social optimal solution. Altough we reach the
point where the two counterparties are better off, one of them will try to
obtain some customers which do not come from its side. The first shop could move
some meters to the centre  and get some
customers of the second shop; in order to reobtain the lost customers, the
second shop could persecute the same strategy. Ultimatley, they will both lie
at the middle of them where each of them gets half of the total customer.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Why do we need
sometimes to walk for a long time in the city center to find a coffee shop and
suddenly we discover three of them on the same corner? Economists have shown
that placing your business far away from competitors does not provide any
benefits to the entrepreneurs; game theory, social optimal solution and
hotelling’s model for spacial competiton  can be useful in order to explain partially
which location to decide regardless our competitors. There can be more reasons
in order to understand  why competitors
are not dispersed in different location; according to the Hotelling’s Model of
Spacial Competition, entrepenuers want to locate their activity in an central
point so that  they might have access to
a huge proportion of customers(et al Wikipedia). Despite all the possible
advantages, competitors might have the same attitutude; therefore, similar
business will be placed in the same location.

Post Author: admin


I'm Velma!

Would you like to get a custom essay? How about receiving a customized one?

Check it out