Nash Equilibrium in Business
Have you ever wondered why 2 cafes, 2 petrol bunks or similar shops are nearby and none of them is there for miles? this happens in most cases. Don't you find it odd because when they are miles apart they should be getting more customers?
PC: Pixabay.com
According to Nash Equilibrium, it is a situation where no one can benefit by changing its position but the changes have to be made by all the players. Let's take a hypothetical situation, where you have set up a store 1 km from a famous tourist space whereas there is a shop already 2 km from that location. Now which seller will benefit from it, the one who has set the shop at 1 km.
So the owner moves its shop just to the tourist spot. So that its customers will increase, seeing this the new owner has moved the shop to that spot. Now the tourist spot has both the shop which is very similar to each other. Now Nash Equilibrium has risen where any of the shop owners will benefit by moving their shop and thus all the owners have to move.
This is the main reason why you see more cafes or petrol bunks at similar locations so that the customers are equally divided among themselves and they will share the profit by 50-50. Now I am not talking about the ratings and all, considering that all the shops have equal ratings and all. This is the main reason why we see a lot of similar shops adjacent to each other rather than at a distance from each other.
Mainly the Nash equilibrium works in the game theory but we can find its significance in the selling business too.
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I just came across something very similar on my way to work today. A new shop that pretty much sells the same thing as the shop that is adjacent to it. I thought the new shop is trying to chip away the profit margins of the old shop. But it's left to the old and potentially new customers to decide which shop they're going to buy from.