How Certain Industries Rely On Locational Competitiveness
I always notice a Burger King outlet next to or within 50 metres of a Mc Donald’s whenever I visit for my favourite burger.
I can understand if it’s in a mall because every major retailer has a storefront in the food court, but these are stores in public areas.
In fact, this is valid for both gas stations and vehicle dealerships. You must have noticed a group of car dealers, I’m sure. Additionally, there are a lot of petrol pumps next to one another.
I conducted a google search to satisfy my curiosity and learn why rival brands are located near to one another. It seems counterintuitive, after all.
The same query had been raised in a thread by a man on twitter.
Let’s use the example of two gas stations that are close to one another, such as BPCL and IOC.
Consider a 1-kilometer stretch at the end of a highway where BPCL and IOC are considering installing gas stations.
They could divide the 1-kilometer span in half logically, placing themselves precisely in the middle of each half.
In this instance, IOC might be at 250 metres (m), while BPCL might place the gas station at 750 metres on the 1-kilometer stretch.
In this manner, BPCL will receive business from the right while IOC will receive business from the left. Additionally, the center’s clients won’t care whether they visit either of
the gas pumps since the distance from the centre will remain constant. The market share will be split 50/50 in this manner.
Customers also benefit from this because they only need to go a total of 250m along the 1-km stretch to fill their gas tanks. Game theorists refer to this situation as a “socially optimal solution” because of this.
However, animal spirits and avarice rule the globe. Logically, lions and tigers ought to get along in a jungle. Thus, they may hunt together and avoid becoming hungry.
However, the lion is the only true ruler of the forest.
So, going back to our example, suppose BPCL grows hungry and decides to steal the IOC’s customers by merely moving to the middle of the one-kilometer road.
IOC is now situated at 250 metres along the one-kilometer road, and BPCL has moved to the centre of the distance, where it is situated at 500 metres. Since it now supplies everyone in the right half and fills some of the demand that once belonged to Indian Oil, BPCL increases its market share.
Indian Oil wouldn’t permit this, of course. Additionally, it will gravitate to the centre, causing clustering.
When we look at Burger King and McDonald’s, we also see this. The Nash Equilibrium is the situation where both players are positioned adjacent to one another in the centre. When choosing which stocks to buy, investors can benefit from learning about competition.
The location’s convenience was the most crucial element in the petrol pump case. This is so because the sold item was a common good. Both locations use the same kind of gasoline.
Therefore, the battle was for the convenience of the customers in terms of distance and things like turning around on the opposite side of the road for the gas station.
Consider movie theatres as an illustration.
PVR and Inox, two premium theatre chains, are comparable in terms of price and comfort level. One of the most crucial considerations in your choice would undoubtedly be how far the theatre is from your house or workplace.
The most important factor in theatre setup is location. Because of this, larger multiplex chains like Inox and PVR have an advantage over smaller theatres.
For quick service businesses like McDonald’s, Burger King, Domino’s, and Pizza Hut, the situation is different.
As far as taste is concerned, the preferences of individuals play a significant role. Even if a Burger King is close to his home, a person who enjoys Mcdonald’s burgers will not mind making a detour or travelling a reasonable distance to satiate his taste buds.
There are some industries where competitive intensity in the form of a regional advantage will dictate market share and firm performance when choosing stocks. Other scenarios, such as those with powerful brands, will involve little relevance.
When searching for your next stock to buy, keep this in mind.
