found this interesting little video [video=youtube;jILgxeNBK_8]https://www.youtube.com/watch?v=jILgxeNBK_8&feature=youtu.be[/video] It is an example where free market forces may not produce the most socially optimal outcome. The phenomena is called Hotelling's model of spatial competition. Basically, different stores could better serve their customers at separate locations, but competition drives each competitor, out of self-interest, to locate their store in the most prime location. If you have ever wondered why stores that sell the same thing often tend to be clustered together in the same shopping center. I am normally against government interfering in the free market (because they get it wrong so often, and then everything involves politics), but could an argument be made here for some sort of government intervention to increase social efficiency?
This ignores that competition is also about quality and prices, as well as niches. Yes, he mentions that in the end, but he didn't explain what effect it would likely have. It also doesn't mention that one seller can sell at many different locations. Were markets just as complicated as icecream stands, this would perhaps be a problem, but it is not.
Local zoning codes would also play a part. We have a Rite-Aid and a Walgreens across the street from each other. I patronize both for different reasons.
Location, location, location. Yes, Target could open up a store out in the boonies somewhere where there is no Wal-Mart within miles but they wouldn't get any business because they are way out in the boonies. As mentioned most communities have zoning restrictions and you can't just plop down a store anywhere you want. There is also the symbiotic effect of stores grouping together even if they are competitors. Pretty much every city has at least one street that is essentially one long stretch of businesses ranging from box stores like Target, Walmart and Best Buy to fast food restaurants and so on, many of them very close to direct competitors. Because it is a hub for shoppers and so many consumer go through there they end up increasing their traffic overall even with competitors nearby.
I suspect there is some way to solve this fairly (theoretically) easily using the Coase theorem. Let competitors give each other legal rates to areas. I'm afraid this would probably violate some anti-trust laws. Also other market imperfections might cause this to lead to collusion.
It is often about maintaining brand loyalty. They do not want you going to their competition so they make themselves available wherever the competition is.
I know the story about Home Depot and Lowes, family fight that ended meanly if true. The one that really makes me scratch my head is Napa Auto Parts and Oriellys Auto Parts. They are almost always very close together. Now I don't know about you but I stopped doing my own mechanical work and upkeep on my car when the whole car went digital. I used to change my own oil too, not any more. How do they survive?
Here is another example where competition may not produce the most socially optimal outcome: Delivery services. I see three different mail delivery companies delivering packages on my street. But wouldn't it make more sense and be less expensive for just one truck to deliver all the packages at the same time? Theoretically yes. But what happens when just one company has a monopoly? They raise their rates for maximum profit. Then a competitor comes in and offers the same service for less. So there is an equilibrium established, how much each company can charge, and pay for the cost of the separate delivery truck, while still having an acceptable profit margin. That will determine how many competitors there are, and the natural equilibrium seems to favor exactly two or three competitors (all else being equal).
I typically will go easier to get into and out of if there is one available (for example right turn in, right turn out) unless there is a SIGNIFICANT price difference. That's rare. A penny or 2 doesn't even amount to a quarter on a fillup.
The Lowe's/Home Depot rumors aren't true. http://www.snopes.com/business/revenge/lowes.asp Both Napa and Orielly sell to local auto shops as well as shade tree mechanics.
Makes sense...but it is still weird. Same deal with Walgreens and CVS, they all seem to open up right next to each other. Must be some marketing tactic here that escapes me.
