TedTest

From the Ted Talk by Jac de Haan: Why do competitors open their stores next to one another?

Unscramble the Blue Letters

Why are gas stations always bilut right next to other gas stations? Why can I drive for a mile without finding a coffee shop and then sltbmue across three on the same corner? Why do grocery serots, auto repair shops and restaurants always seem to exist in groups instead of being spread evenly throughout a community? While there are several factors that might go into ddeiincg where to place your business, clusters of similar companies can be explained by a very simple story called Hotelling's Model of Spatial Competition. Imagine that you sell ice cream at the beach. Your beach is one mile long and you have no competition. Where would you pclae your cart in order to sell the most pocdurt? In the middle. The one-half-mile walk may be too far for some people at each end of the beach, but your cart sreves as many people as possible. One day you show up at work just as your cousin Teddy is arriving at the beach with his own ice cream cart. In fact, he's selling exactly the same type of ice cream as you are. You agree that you will split the beach in half. In order to ensure that customers don't have to walk too far you set up your cart a quarter mile south of the beach center, right in the middle of your territory. Teddy sets up a quarter mile north of the center, in the middle of Teddy toirretry. With this agreement, everyone south of you buys ice cream from you. Everyone north of Teddy buys from him, and the 50% of beachgoers in between walk to the closest cart. No one walks more than a quarter of a mile, and both vendors sell to half of the beecaghros. Game toshtiers consider this a socially optimal solution. It minimizes the maximum number of steps any visitor must take in order to reach an ice craem cart. The next day, when you avrire at work, Teddy has set up his cart in the middle of the beach. You rrtuen to your location a quarter mile south of center and get the 25% of customers to the south of you. Teddy still gets all of the customers nrtoh in Teddy territory, but now you split the 25% of people in between the two carts. Day three of the ice cream wars, you get to the bceah early, and set up right in the center of Teddy territory, assuming you'll serve the 75% of beachgoers to your south, leaving your couisn to sell to the 25% of customers to the north. When tddey arrives, he sets up just south of you stealing all of the southerly customers, and leaving you with a small group of people to the north. Not to be outdone, you move 10 paces south of Teddy to regain your customers. When you take a mid-day barek, Teddy shuffles 10 paces south of you, and again, steals back all the cumotsres to the far end of the beach. Throughout the course of the day, both of you ciountne to periodically move south towards the bulk of the ice cream buyers, until both of you eventually end up at the ceetnr of the beach, back to back, each snrevig 50% of the ice-cream-hungry beachgoers. At this point, you and your competitive cousin have reached what game theorists call a Nash Equilibrium - the pniot where neither of you can improve your position by deviating from your cneurrt strategy. Your original strategy, where you were each a quarter mile from the mdldie of the beach, didn't last, because it wasn't a Nash Equilibrium. Either of you could move your cart towards the other to sell more ice cream. With both of you now in the center of the beach, you can't reposition your cart closer to your frtuseht customers without mkanig your current customers worse off. However, you no lgoenr have a socially optimal solution, since customers at either end of the beach have to walk further than necessary to get a sweet traet. Think about all the fast food chains, clothing boutiques, or mloibe phone kiosks at the mall. Customers may be better served by distributing services throughout a community, but this leaves businesses vulnerable to agvsrsgeie ciipeotmton. In the real world, customers come from more than one direction, and businesses are free to compete with marketing saritetegs, by differentiating their product line, and with price cuts, but at the heart of their srtgteay, caimpones like to keep their competition as close as possible.

Open Cloze

Why are gas stations always _____ right next to other gas stations? Why can I drive for a mile without finding a coffee shop and then _______ across three on the same corner? Why do grocery ______, auto repair shops and restaurants always seem to exist in groups instead of being spread evenly throughout a community? While there are several factors that might go into ________ where to place your business, clusters of similar companies can be explained by a very simple story called Hotelling's Model of Spatial Competition. Imagine that you sell ice cream at the beach. Your beach is one mile long and you have no competition. Where would you _____ your cart in order to sell the most _______? In the middle. The one-half-mile walk may be too far for some people at each end of the beach, but your cart ______ as many people as possible. One day you show up at work just as your cousin Teddy is arriving at the beach with his own ice cream cart. In fact, he's selling exactly the same type of ice cream as you are. You agree that you will split the beach in half. In order to ensure that customers don't have to walk too far you set up your cart a quarter mile south of the beach center, right in the middle of your territory. Teddy sets up a quarter mile north of the center, in the middle of Teddy _________. With this agreement, everyone south of you buys ice cream from you. Everyone north of Teddy buys from him, and the 50% of beachgoers in between walk to the closest cart. No one walks more than a quarter of a mile, and both vendors sell to half of the __________. Game _________ consider this a socially optimal solution. It minimizes the maximum number of steps any visitor must take in order to reach an ice _____ cart. The next day, when you ______ at work, Teddy has set up his cart in the middle of the beach. You ______ to your location a quarter mile south of center and get the 25% of customers to the south of you. Teddy still gets all of the customers _____ in Teddy territory, but now you split the 25% of people in between the two carts. Day three of the ice cream wars, you get to the _____ early, and set up right in the center of Teddy territory, assuming you'll serve the 75% of beachgoers to your south, leaving your ______ to sell to the 25% of customers to the north. When _____ arrives, he sets up just south of you stealing all of the southerly customers, and leaving you with a small group of people to the north. Not to be outdone, you move 10 paces south of Teddy to regain your customers. When you take a mid-day _____, Teddy shuffles 10 paces south of you, and again, steals back all the _________ to the far end of the beach. Throughout the course of the day, both of you ________ to periodically move south towards the bulk of the ice cream buyers, until both of you eventually end up at the ______ of the beach, back to back, each _______ 50% of the ice-cream-hungry beachgoers. At this point, you and your competitive cousin have reached what game theorists call a Nash Equilibrium - the _____ where neither of you can improve your position by deviating from your _______ strategy. Your original strategy, where you were each a quarter mile from the ______ of the beach, didn't last, because it wasn't a Nash Equilibrium. Either of you could move your cart towards the other to sell more ice cream. With both of you now in the center of the beach, you can't reposition your cart closer to your ________ customers without ______ your current customers worse off. However, you no ______ have a socially optimal solution, since customers at either end of the beach have to walk further than necessary to get a sweet _____. Think about all the fast food chains, clothing boutiques, or ______ phone kiosks at the mall. Customers may be better served by distributing services throughout a community, but this leaves businesses vulnerable to __________ ___________. In the real world, customers come from more than one direction, and businesses are free to compete with marketing __________, by differentiating their product line, and with price cuts, but at the heart of their ________, _________ like to keep their competition as close as possible.

Solution

continue
theorists
competition
strategies
current
beachgoers
making
middle
center
aggressive
longer
teddy
strategy
cousin
furthest
serves
treat
serving
stores
break
customers
north
product
companies
place
beach
mobile
deciding
point
territory
return
arrive
built
stumble
cream

Original Text

Why are gas stations always built right next to other gas stations? Why can I drive for a mile without finding a coffee shop and then stumble across three on the same corner? Why do grocery stores, auto repair shops and restaurants always seem to exist in groups instead of being spread evenly throughout a community? While there are several factors that might go into deciding where to place your business, clusters of similar companies can be explained by a very simple story called Hotelling's Model of Spatial Competition. Imagine that you sell ice cream at the beach. Your beach is one mile long and you have no competition. Where would you place your cart in order to sell the most product? In the middle. The one-half-mile walk may be too far for some people at each end of the beach, but your cart serves as many people as possible. One day you show up at work just as your cousin Teddy is arriving at the beach with his own ice cream cart. In fact, he's selling exactly the same type of ice cream as you are. You agree that you will split the beach in half. In order to ensure that customers don't have to walk too far you set up your cart a quarter mile south of the beach center, right in the middle of your territory. Teddy sets up a quarter mile north of the center, in the middle of Teddy territory. With this agreement, everyone south of you buys ice cream from you. Everyone north of Teddy buys from him, and the 50% of beachgoers in between walk to the closest cart. No one walks more than a quarter of a mile, and both vendors sell to half of the beachgoers. Game theorists consider this a socially optimal solution. It minimizes the maximum number of steps any visitor must take in order to reach an ice cream cart. The next day, when you arrive at work, Teddy has set up his cart in the middle of the beach. You return to your location a quarter mile south of center and get the 25% of customers to the south of you. Teddy still gets all of the customers north in Teddy territory, but now you split the 25% of people in between the two carts. Day three of the ice cream wars, you get to the beach early, and set up right in the center of Teddy territory, assuming you'll serve the 75% of beachgoers to your south, leaving your cousin to sell to the 25% of customers to the north. When Teddy arrives, he sets up just south of you stealing all of the southerly customers, and leaving you with a small group of people to the north. Not to be outdone, you move 10 paces south of Teddy to regain your customers. When you take a mid-day break, Teddy shuffles 10 paces south of you, and again, steals back all the customers to the far end of the beach. Throughout the course of the day, both of you continue to periodically move south towards the bulk of the ice cream buyers, until both of you eventually end up at the center of the beach, back to back, each serving 50% of the ice-cream-hungry beachgoers. At this point, you and your competitive cousin have reached what game theorists call a Nash Equilibrium - the point where neither of you can improve your position by deviating from your current strategy. Your original strategy, where you were each a quarter mile from the middle of the beach, didn't last, because it wasn't a Nash Equilibrium. Either of you could move your cart towards the other to sell more ice cream. With both of you now in the center of the beach, you can't reposition your cart closer to your furthest customers without making your current customers worse off. However, you no longer have a socially optimal solution, since customers at either end of the beach have to walk further than necessary to get a sweet treat. Think about all the fast food chains, clothing boutiques, or mobile phone kiosks at the mall. Customers may be better served by distributing services throughout a community, but this leaves businesses vulnerable to aggressive competition. In the real world, customers come from more than one direction, and businesses are free to compete with marketing strategies, by differentiating their product line, and with price cuts, but at the heart of their strategy, companies like to keep their competition as close as possible.

Frequently Occurring Word Combinations

ngrams of length 2

collocation	frequency
ice cream	8
quarter mile	4
cream cart	2
mile south	2
game theorists	2
socially optimal	2
paces south	2
nash equilibrium	2

ngrams of length 3

collocation	frequency
ice cream cart	2
quarter mile south	2

Important Words

aggressive
agree
agreement
arrive
arrives
arriving
assuming
auto
beach
beachgoers
boutiques
break
built
bulk
business
businesses
buyers
buys
call
called
cart
carts
center
chains
close
closer
closest
clothing
clusters
coffee
community
companies
compete
competition
competitive
continue
corner
cousin
cream
current
customers
cuts
day
deciding
deviating
differentiating
direction
distributing
drive
early
ensure
equilibrium
evenly
eventually
exist
explained
fact
factors
fast
finding
food
free
furthest
game
gas
grocery
group
groups
heart
ice
imagine
improve
kiosks
leaves
leaving
line
location
long
longer
making
mall
marketing
maximum
middle
mile
minimizes
mobile
model
move
nash
north
number
optimal
order
original
outdone
paces
people
periodically
phone
place
point
position
price
product
quarter
reach
reached
real
regain
repair
reposition
restaurants
return
sell
selling
serve
served
serves
services
serving
set
sets
shop
shops
show
shuffles
similar
simple
small
socially
solution
south
southerly
spatial
split
spread
stations
stealing
steals
steps
stores
story
strategies
strategy
stumble
sweet
teddy
territory
theorists
treat
type
vendors
visitor
vulnerable
walk
walks
wars
work
world
worse