Why are hotels, restaurants, workshops, often clustered in one location instead of spread?
Perhaps you are minded. Why not open a business in a more diffuse and may be minimal competition?
This is what berusahan answered by Jac de Haan in one material at TED. He suggested some answers why your competitors will open next door to your business instead of having to choose another location to capture new markets. Jac call it: "Hotelling's Model Of Spattial Competition."
In his presentation, Jac describe this case with Ed, a seller of ice cream on the beach. Ed will choose the best location on the beach, namely: right in the middle! It will make an ice cream cart Ed is in the optimal position and will make it easier for visitors to the beach to see the cart. Visitors who are in any position on the beach would have the same relative distance to walk to get to the store ED. This is called: "Socially Optimal Solution" (SOS) which in essence is to minimize effort or steps used to reach the location of your shop wherever you came from prospective buyers.
But the problem appears when you open your competitors the same store with the same product in the location of the same, with the same target market. So here you will optimize each site and tried to steal the market from competitors. When there is nothing left of your business location to be optimized, and the competitors you will reach a point called the "Nash Equilibrium" (point of Nash.) If you've ever watched the movie "A Beautiful Mind" You may have heard this term.
Although it may sound complicated, the above explanation is simply presented in the following video, a lightweight and simple animation that you will easily understand all the explanations about why you and your competitors will not be able to split away. Enjoy: