It feels counterintuitive, shouldn’t businesses try to stay away from their competition?

Turns out, there’s a solid strategy behind this strange setup. And if you’re launching a business, especially in retail or food, understanding this might just change how you think about location.

It’s Called Economic Agglomeration

In simple terms, agglomeration means similar businesses group together to take advantage of shared benefits—like increased foot traffic, a concentrated customer base, or even the ability to share suppliers or resources.

Think of it like a shopping mall: instead of spreading stores all over town, they’re concentrated in one place so people can easily browse, compare, and buy. Everybody wins—customers and sellers.

Enter the Ice Cream Stand Theory (Hotelling’s Law)

Imagine a beach. Two ice cream sellers want to set up shop. If one goes to the far left and the other to the far right, they split the beach in half. But over time, they’ll both move toward the middle—to capture more of the crowd.

That’s Hotelling’s Law: in a competitive environment, businesses tend to move closer together to avoid giving ground to their rivals.

Why It Actually Makes Sense

• Customers compare. If someone wants a burger, they’ll likely check prices between McDonald's and Burger King before choosing. That’s good—it brings people to the area.

• Trust Factor. A street full of electronics stores makes you think, “This is the place to get a phone,” even if you don’t know the brand.

• Shared Traffic. One person going for gas might see the coffee shop next door and stop by. Everyone benefits.

When Clustering Backfires

But it’s not always sunshine and synergy. Sometimes, too many similar businesses lead to price wars or a race to the bottom. Other times, the market just can’t support everyone—and someone gets pushed out.

That’s why it’s not just about being close; it’s about being better positioned—with stronger branding, a better offer, or more loyal customers.

If you’re launching a new business, don’t automatically avoid areas with competition. Sometimes, being near the “enemy” is actually smart—especially if you offer something unique, better service, or a brand people remember.

It’s not about hiding—it’s about standing out in the right place.

Your Turn

Seen this in your city? Ever wondered why there's a Starbucks across from another Starbucks?