Many people have observed that retail gas stations tend to operate very closely to one another. Explain the logic behind having a gas station at each corner of an intersection
What will be an ideal response?
In the attempt to maximize profits firms find it in their interest to differentiate themselves from their rivals. However, they don't want to be too different as to alienate large numbers of consumers. If there is a gas station located on one corner of an intersection and new entrants are deciding where to locate they could certainly locate farther away from the existing firm. But this may result in losing customers as potential patrons will have already stopped at the competitor's station. Locating closer to their rivals diminishes the product differentiation that the incumbent firms have established for themselves.
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