Why business competitors locate themselves near each other

If you have ever wondered why businesses often locate themselves near their competitors, you're not alone. The saying, “Keep your friends close, but your enemies closer” didn’t satisfy my curiosity to this phenomenon, but I did find an answer that makes some intuitive sense once you take the time to think about it.

This is much easier to explain with an example, so here we go.

For starters let's assume we have a single vendor kiosk in a mall. That square below is the mall.

Your goal as the kiosk owner is for your kiosk to be visited or at least seen by as many customers as possible. With this in mind, the most ideal location for your kiosk would be the center of the mall, assuming traffic through all entrances is roughly the same. This makes a lot of sense because you are now equidistant from all entrances of the mall which makes it easier for customers coming in from any direction to find your kiosk.

Sales have been going great for you until one day you come into work, and someone else has set up their kiosk selling similar products to you. They have positioned their kiosk closer to the north side of the mall.

So, you move your kiosk a little closer to the south side of the mall to establish an equal territory between you and your competitor.

The next day you come in, and the owner of the other kiosk has now positioned themselves at the center of the mall.

Where do you move your kiosk now? If you stay closer to a specific entrance then your competitor is getting the majority of the visitors coming from all the other entrances. This forces you to move your kiosk to the center as well to give yourself a better chance of attracting customers.

We have arrived at the final stage where our business has somehow positioned itself next to its competitor.

In summary, the reason this occurs is because businesses want to play it safe. Once both kiosks are positioned in the center they are splitting the number of customers. If either kiosk decides to move elsewhere, they will be forfeiting some of the customers they would have had while at the center. The goal as a business owner is not to be located close to competitors, but being close to competitors is a direct result of being in a convenient location for your customers.