Observational analysts and anthropologists note that retail stores that sell similar products are often clustered in and around the same location. They are competing for the same kind of target demography and the product deliverable is also found to be similar. The purpose of this analysis is to understand the nuances and the theory behind this formative structure. This has been elucidated in the following.
Retail stores will be benefitted if they are located at proximal distance from each other according to the Hotelling local model theory. The notion of fixed length has been elucidated in this theory. The consumers are expected to be evenly dispersed and the product demand and the consumer requirements are met in an environment where all the stakeholders are expected to be benefitted (Eiselt, 2011). However, in reality, this does not occur. There is ongoing aggressive competition, based on which the stores find it to be functionally beneficial when they operate in close proximal zones competing for the same kind of consumer demographic.
In the Hotelling model of spatial competition leads to the development of the socially optimal solution. However, this does not function according to the theory in reality. It has been found that the retailers consider each other to be an aggressive competitor and they reach Nash equilibrium.
Nash equilibrium is the final solution that arrives based on the non-cooperative game of the retailers. They each try to reach equilibrium strategies where the other player cannot gain by the change of their strategy. In other words, the retailers try to keep their competition close to understand their marketing strategies and try to develop their deliverables to increase competitive advantage (Eiselt, 2011). Nash equilibrium develops a prisoner’s dilemma. The prisoner’s dilemma is the position where two accused individuals are placed in different cells. They each want to sustain and develop some form of leverage to sustain. Nash equilibrium also leads to a form of prisoner’s dilemma, where there is focus given to improving the deliverables.
The competitors try to gain consumer patronage by changing their marketing strategies and product differentiation. In this process the consumer feels that they receive the best possible deal from the competitors and the competitors also develop innovative strategies to sell the same product or deliverables.