In and around downtown Udaipur, you run into clusters of merchants selling exactly the same thing. There’s a block with ten pharmacies in a row, all selling roughly the same goods and another block with five banks in a row. In Delhi Gate, there are about twenty women sitting next to each other who all sell flowers. Hotelling’s law says that on a 2-dimensional street with two shops, they will rationally converge at the middle. And I remember reading somewhere that McDonald’s spent a ton of money figuring out the ideal locations for its stores, and Burger King just built a restaurant wherever there was a McDonald’s. But with ten shops all in a row, common sense says a shop in the middle of the row could make more money by moving to the end, or to a different part of town. I can think of a few reasons: 1) The shop-owners all purchase from the same distributor. Perhaps they get a discount by purchasing together. 2) Maybe everyone in Udaipur knows the place to go for flowers or pharmaceutical drugs and so there’s a big market in that particular location. This is similar to the distribution of car dealers in the US. However, car dealers sell differentiable products and you can find pharmacies and flower sellers regularly in other parts of town. 3) Everyone in Udaipur knows everyone else, so buyers spread out their purchases between sellers. The sellers are selling indistinguishable products so it’s hard to stand out as the best. 4) The sellers are colluding and sharing profits. That, or the margins would be low anyway and they enjoy each other’s company. 5) Flowers, drugs and banks are just a front for some kind of illegal business. Not likely as cultural norms against alcohol, gambling and prostitution are quite strong. 6) Peculiar zoning laws mean that pharmacies/banks that set up in a specific spot got a special tax break. I have heard as well that in India the laws favor small businesses, opposed to big business. 7) I hesitate but maybe the sellers have a weak grasp of business concepts, or lack the desire to make higher profits for whatever reason. 5, 6, and 7 are particularly unlikely, and 1 and 4 are the most likely, None of the arguments here are particularly persuasive. Hotelling's law may be more powerful than I thought. I will investigate further.

Liked what you read? I am available for hire.