Socially Optimal Solution- Nash Equilibrium (Why do competitors open their stores next to each other in the same place?)

Ever wondered why Domino's, Pizza Hut & La Pinoz Pizza are located in the same area? Also, other brand's outlets are located in the same area next to one another?

Why do you see most vegetable vendors serving the same produce side by side? And why do clothing stores of various brands often huddle together? You might think that spreading out would lead to more profit, right?

Well, there's a fascinating reason for this phenomenon - it's called Nash Equilibrium! Nash Equilibrium is a concept from game theory that explains why competitors often choose to locate near one another. It's not about crowding, but about strategic positioning. Here's the scoop: By being in close proximity, these businesses create a magnet effect.

Let us try to understand with the example- We often find two different brands from the same industry in the same complex and we also find two petrol pumps from Different companies within the 1 km distance. why….??

Well, I have the answer We often find McDonald’s and KFC outlets in the same complex or next to each other in the market because if they open their outlets in the extreme corner of the city might the chance one will cater to more customers other and this will create unnecessary losing sales so here Game theory comes in the picture where both the outlets come together and open their outlets at the optimum point of the city where both caters the exactly same amount of customers this is called NASH Equilibrium where the optimal strategy for a player is to stay the course of their initial strategy while knowing the opponent’s strategy and that all players maintain the same strategy, as long as all other players do not change their strategy.

Customers looking for a particular product or service are drawn to the area because they know they have multiple options to choose from. This clustering strategy can benefit everyone involved - businesses can tap into a larger customer pool, and customers get the convenience of choice in one spot. So, the next time you see those pizza joints or clothing stores all bunched up, remember, it's not just chance - it's strategic brilliance!

Do you know of any other such business strategies that brands use? Comments Below.

#brandstrategy #businessgrowth #Marketing #Product designing

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