Why do Restaurants Cluster?

When you visit an established shopping centre, have you ever wondered how the variety of restaurants survive amid all the competition? Why do such restaurants choose to be located near each other? Wouldn’t sales dwindle due to the close proximity to competitors? It sure seems ironical to be located close to a competitor.

Such clustering is called “agglomeration” in economics. When restaurants cluster together, there may be advantages because that cluster attracts more customers than a single restaurant alone could. Restaurants agglomerate when the benefits of agglomeration are higher than the costs involved.

A great example of the above would be a group of adults going for lunch. Would it make more sense to go to a venue where there are many restaurants to choose from or go to a place where there is only one standalone outlet of McDonald’s? The former makes more sense since there is a variety of restaurants and food to choose from instead of sticking to burgers.

Therefore, the next time you visit the restaurant cluster at Basement 1 of Jurong Point, you can appear smart by explaining to your friends why those restaurants are clustered together.

Advertisements

2 thoughts on “Why do Restaurants Cluster?

  1. That is an interesting concept! We know this and practice this, but without reading this post, I wouldn’t have been aware of this concept nor know there is an economics term to it!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s