Restaurants cluster together. That is, on one corner, there may be four similar fast-food restaurants. How can this be explained using a location game theory model?
What will be an ideal response?
Similar to the beach kiosk model, restaurants cluster because they attract the most customers that way. One explanation might be: assume that customers have identical transportation costs, are distributed uniformly, and have no preference for one restaurant over another. Then they will always go to the closest restaurant. If one is located far away from the other, it would attract customers on the other side of it, but only half of the ones between it and its rival. If it locates next to its rival, it gets all the customers on that side, and thus maximizes profit.
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