If you want to buy a diamond in London then where would you go? This map shows the top diamond shops in London, they are in two clusters, Hatton Garden and Old Bond Street. Similarly, New York has its 47th Street diamond district.
Why do businesses that compete with each other all end up in the same place, surely it is better to be away from your competition?
Businesss isn’t always a black and white, win or lose situation. Sometimes your competitors can also help you.
Think about the situation a customer is in when they are looking to buy a diamond. This is a big purchase, probably something they will only do a few times in their life. They probably know very little about diamonds and so will need to get advice from a retailer that they can trust.
If all the shops are together then they can easily go from one to another to compare and get more confident in their purchase before they take the plunge and spend thousands.
They can also be more confident that a rogue store, trying to rip them off, will find it very hard to survive when they are surrounded by legitimate retailers.
The same pattern can be seen with a lot of high value, irregular purchases. In many cities you will find antique districts; car dealerships often cluster together; as do estate agents or realtors.
The same pattern does not happen with low value, regular purchases. The map below shows the distribution of dry cleaners in London. They are evenly distributed over the city because using a dry cleaners is a simple thing and no-one will travel far to do it.
Business isn’t a zero-sum game, sometimes your competitors help you out.