[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:15.11,0:00:19.11,Default,,0000,0000,0000,,Why are gas stations always built right next to other gas stations?
Dialogue: 0,0:00:19.11,0:00:21.81,Default,,0000,0000,0000,,Why is it that I can drive for a mile without finding a coffee shop
Dialogue: 0,0:00:21.81,0:00:24.14,Default,,0000,0000,0000,,and then stumble across three on the same corner?
Dialogue: 0,0:00:24.14,0:00:27.08,Default,,0000,0000,0000,,Why do grocery stores, auto repair shops and restaurants
Dialogue: 0,0:00:27.08,0:00:31.92,Default,,0000,0000,0000,,always seem to exist in groups instead of being spread evenly throughout a community?
Dialogue: 0,0:00:31.92,0:00:35.84,Default,,0000,0000,0000,,While there are several factors that might go into deciding where to place your business,
Dialogue: 0,0:00:35.84,0:00:39.48,Default,,0000,0000,0000,,clusters of similar companies can be explained by a very simple story
Dialogue: 0,0:00:39.48,0:00:43.71,Default,,0000,0000,0000,,called Hotelling's Model of Spatial Competition.
Dialogue: 0,0:00:43.71,0:00:45.09,Default,,0000,0000,0000,,Imagine that you sell ice cream at the beach.
Dialogue: 0,0:00:45.09,0:00:48.08,Default,,0000,0000,0000,,Your beach is one mile long and you have no competition.
Dialogue: 0,0:00:48.08,0:00:51.29,Default,,0000,0000,0000,,Where would you place your cart in order to sell the most product?
Dialogue: 0,0:00:51.29,0:00:52.39,Default,,0000,0000,0000,,In the middle.
Dialogue: 0,0:00:52.39,0:00:55.44,Default,,0000,0000,0000,,The one-half-mile walk may be too far for some people
Dialogue: 0,0:00:55.44,0:00:58.78,Default,,0000,0000,0000,,at each end of the beach, but your cart serves as many people as possible.
Dialogue: 0,0:00:58.78,0:01:02.69,Default,,0000,0000,0000,,One day you show up at work just as your cousin Teddy is arriving at the beach
Dialogue: 0,0:01:02.69,0:01:07.34,Default,,0000,0000,0000,,with his own ice cream cart. In fact, he's selling exactly the same type of ice cream as you are.
Dialogue: 0,0:01:07.34,0:01:10.81,Default,,0000,0000,0000,,You agree that you will split the beach in half.
Dialogue: 0,0:01:10.81,0:01:13.13,Default,,0000,0000,0000,,In order to insure that customer's don't have to walk too far
Dialogue: 0,0:01:13.13,0:01:16.38,Default,,0000,0000,0000,,you set up your cart a quarter mile south of the beach center,
Dialogue: 0,0:01:16.38,0:01:18.29,Default,,0000,0000,0000,,right in the middle of your territory.
Dialogue: 0,0:01:18.29,0:01:20.78,Default,,0000,0000,0000,,Teddy sets up a quarter mile north of the center,
Dialogue: 0,0:01:20.78,0:01:22.79,Default,,0000,0000,0000,,in the middle of Teddy territory.
Dialogue: 0,0:01:22.79,0:01:25.29,Default,,0000,0000,0000,,With this agreement, everyone south of you buys ice cream from you.
Dialogue: 0,0:01:25.29,0:01:29.24,Default,,0000,0000,0000,,Everyone north of Teddy buys from him, and the 50% of beachgoers in between
Dialogue: 0,0:01:29.24,0:01:33.78,Default,,0000,0000,0000,,walk to the closest cart. No one walks more than a quarter of a mile,
Dialogue: 0,0:01:33.78,0:01:36.68,Default,,0000,0000,0000,,and both vendors sell to half of the beachgoers.
Dialogue: 0,0:01:36.68,0:01:40.86,Default,,0000,0000,0000,,Game theorists consider this a socially optimal solution.
Dialogue: 0,0:01:40.86,0:01:44.38,Default,,0000,0000,0000,,It minimizes the maximum number of steps any visitor must take
Dialogue: 0,0:01:44.38,0:01:46.38,Default,,0000,0000,0000,,in order to reach an ice cream cart.
Dialogue: 0,0:01:46.38,0:01:48.26,Default,,0000,0000,0000,,The next day, when you arrive at work,
Dialogue: 0,0:01:48.26,0:01:51.06,Default,,0000,0000,0000,,Teddy has set up his cart in the middle of the beach.
Dialogue: 0,0:01:51.06,0:01:54.32,Default,,0000,0000,0000,,You return to your location a quarter mile south of center
Dialogue: 0,0:01:54.32,0:01:57.09,Default,,0000,0000,0000,,and get the 25% of customers to the south of you.
Dialogue: 0,0:01:57.09,0:02:00.66,Default,,0000,0000,0000,,Teddy still gets all of the customers north in Teddy territory,
Dialogue: 0,0:02:00.66,0:02:04.73,Default,,0000,0000,0000,,but now you split the 25% of people in between the two carts.
Dialogue: 0,0:02:04.73,0:02:07.56,Default,,0000,0000,0000,,Day three of the ice cream wars, you get to the beach early,
Dialogue: 0,0:02:07.56,0:02:10.19,Default,,0000,0000,0000,,and set up right in the center of Teddy territory,
Dialogue: 0,0:02:10.19,0:02:14.28,Default,,0000,0000,0000,,assuming you'll serve the 75% of beachgoers to your south,
Dialogue: 0,0:02:14.28,0:02:17.58,Default,,0000,0000,0000,,leaving your cousin to sell to the 25% of customers to the north.
Dialogue: 0,0:02:17.58,0:02:20.54,Default,,0000,0000,0000,,When Teddy arrives, he sets up just south of you
Dialogue: 0,0:02:20.54,0:02:24.86,Default,,0000,0000,0000,,stealing all of the southerly customers, and leaving you with a small group of people to the north.
Dialogue: 0,0:02:24.86,0:02:29.36,Default,,0000,0000,0000,,Not to be outdone, you move 10 paces south of Teddy to regain your customers.
Dialogue: 0,0:02:29.36,0:02:32.86,Default,,0000,0000,0000,,When you take a mid-day break, Teddy shuffles 10 paces south of you,
Dialogue: 0,0:02:32.86,0:02:36.56,Default,,0000,0000,0000,,and again, steals back all the customers to the far end of the beach.
Dialogue: 0,0:02:36.56,0:02:40.02,Default,,0000,0000,0000,,Throughout the course of the day, both of you continue to periodically move south
Dialogue: 0,0:02:40.02,0:02:42.86,Default,,0000,0000,0000,,towards the bulk of the ice cream buyers,
Dialogue: 0,0:02:42.86,0:02:45.48,Default,,0000,0000,0000,,until both of you eventually end up at the center of the beach,
Dialogue: 0,0:02:45.48,0:02:49.74,Default,,0000,0000,0000,,back to back, each serving 50% of the ice-cream-hungry beachgoers.
Dialogue: 0,0:02:49.74,0:02:54.98,Default,,0000,0000,0000,,At this point, you and your competitive cousin have reached what game theorists call a Nash Equilibrium -
Dialogue: 0,0:02:54.98,0:02:59.96,Default,,0000,0000,0000,,the point where neither of you can improve your position by deviating from your current strategy.
Dialogue: 0,0:02:59.96,0:03:03.86,Default,,0000,0000,0000,,Your original strategy, where you were each a quarter mile from the middle of the beach,
Dialogue: 0,0:03:03.86,0:03:07.11,Default,,0000,0000,0000,,didn't last, because it wasn't a Nash Equilibrium.
Dialogue: 0,0:03:07.11,0:03:10.96,Default,,0000,0000,0000,,Either of you could move your cart toward the other to sell more ice cream.
Dialogue: 0,0:03:10.96,0:03:12.82,Default,,0000,0000,0000,,With both of you now in the center of the beach,
Dialogue: 0,0:03:12.82,0:03:16.93,Default,,0000,0000,0000,,you can't reposition your cart closer to your furthest customers
Dialogue: 0,0:03:16.93,0:03:19.19,Default,,0000,0000,0000,,without making your current customers worse off.
Dialogue: 0,0:03:19.19,0:03:22.59,Default,,0000,0000,0000,,However, you no longer have a socially optimal solution,
Dialogue: 0,0:03:22.59,0:03:24.42,Default,,0000,0000,0000,,since customers at either end of the beach
Dialogue: 0,0:03:24.42,0:03:27.63,Default,,0000,0000,0000,,have to walk further than necessary to get a sweet treat.
Dialogue: 0,0:03:27.63,0:03:32.30,Default,,0000,0000,0000,,Think about all the fast food chains, clothing boutiques, or mobile phone kiosks at the mall.
Dialogue: 0,0:03:32.30,0:03:36.01,Default,,0000,0000,0000,,Customers may be better served by distributing services throughout a community,
Dialogue: 0,0:03:36.01,0:03:39.54,Default,,0000,0000,0000,,but this leaves businesses vulnerable to aggressive competition.
Dialogue: 0,0:03:39.54,0:03:42.81,Default,,0000,0000,0000,,In the real world, customers come from more than one direction,
Dialogue: 0,0:03:42.81,0:03:45.69,Default,,0000,0000,0000,,and businesses are free to compete with marketing strategies,
Dialogue: 0,0:03:45.69,0:03:47.51,Default,,0000,0000,0000,,by differentiating their product line, and with price cuts,
Dialogue: 0,0:03:47.51,0:03:51.94,Default,,0000,0000,0000,,but at the heart of their strategy, companies like to keep their competition
Dialogue: 0,0:03:51.94,0:03:55.94,Default,,0000,0000,0000,,as close as possible.