Why Clusters Of Like Businesses Thrive
ROBERT SIEGEL, host:
This is a tough time for any small business. But our Planet Money team has been puzzling over one longtime behavior of businesses - a behavior that seems counter productive. Stories that sell the same thing and yet cluster together. Seems like that would create too much competition. One place you often see this is New York City.
NPR's Chana Joffe-Walt and Adam Davidson stopped by some businesses to try to figure it out.
(Soundbite of door)
CHANA JOFFE-WALT: Village Chess is offering a beautiful, hand-carved antique Italian chess set.
ADAM DAVIDSON: Only $2,000.
JOFFE-WALT: They also have Charles Dickens pieces, samurai sets, ancient Chinese sets.
DAVIDSON: For decades, Village Chess has been the place you go for all of your chess needs.
JOFFE-WALT: Well, it was that way. And then one day, Laurence Nash, the owner, says one of his employees, actually a protege of his, stabbed him in the back. He set up a shop right across the street.
Mr. LAURENCE NASH (Owner, Village Chess): Somebody you teach and leaves and opens up across the street, there's going to be bad feelings for sure.
JOFFE-WALT: The bad feelings went on for a long time. Within the chess community, it became known as a famous war.
DAVIDSON: Village Chess hated losing their monopoly on the chess obsessive's market. Then, something surprising happened after Chess Forum, that's the new competitor, took out an ad in the paper.
JOFFE-WALT: All of a sudden, Nash says new people started showing up at Village Chess, his shop, saying things like�
Mr. NASH: I saw their ad and then I saw you and that kind of thing. That's a great feeling. He paid some advertising to get people to come to me. That's a wonderful thing.
JOFFE-WALT: The fancy term for this is economies of agglomeration. It means that sellers make this basic calculation.
DAVIDSON: Sure, you lose a lot of customers to the chess store across the street, but getting more traffic evens things out. Village Chess is no longer one specialty shop on its own, it's now part of New York's chess district.
JOFFE-WALT: New York has a lighting district, a plants district, a kitchen supply district, an Indian restaurant district and then there is this.
Unidentified Man #1: We buy gold, diamonds, coins, silver. No money, no honey. No money, no honey. We buy, we buy, we buy.
DAVIDSON: The district to beat all districts: 47th Street in Manhattan, the diamond district.
JOFFE-WALT: This is not a just a couple of similar shops on the same block, 47th Street has - and this is an official statistic here - more than 2,600 jewellery sellers.
DAVIDSON: Twenty-six-hundred little booths of bling crammed into one block. And for years, I've wondered why in the world would somebody want to be jewellery shop No. 2553 alongside so much competition.
JOFFE-WALT: Yeah. We asked Peter Kahn(ph), booth number 25 in mall number 37, you could open up your own store in some strip mall in New Jersey where you could be the only one.
Mr. PETER KAHN: I do less business, but the prices would be higher and I'd end up making the same amount of money with probably more aggravation and waiting for somebody to come in and stick a gun in my face, which goes on all the time.
DAVIDSON: Oh, because diamond stores are always getting held up.
Mr. KAHN: Yeah, it's a dangerous business.
JOFFE-WALT: This is the thing about stores clumping together. So, you've got that main economic explanation, extra traffic outweighs the extra competition. But then each industry also has its own special reasons.
DAVIDSON: Jewelers like Gazelle's think there's safety in numbers.
JOFFE-WALT: A plant store owner in New York wants to be in New York's plant district because big buyers for hotels and film shoots, they're not going to drive around to 20 separate shops.
DAVIDSON: Furniture shops want to be where there's plenty of parking.
JOFFE-WALT: And it turns out that closer you are to shops that are almost exactly the same as yours, the more different you have to be.
DAVIDSON: Peter Kahn, he's booth number 25, remember? He says his gambit: He's more trustworthy than any other jeweler.
JOFFE-WALT: Strangely, booth number 32 and booth number 46 also claim to be uniquely trustworthy.
DAVIDSON: A few booths down from Peter, an Ecuadorian jeweler says her specialty is to sell to Ecuadorian immigrants. And the guy across from her, his specialty is making really intricate handmade gold rings.
JOFFE-WALT: Even when you're all clumped together, actually, especially when you're all clumped together, you've got to show you are one of a kind.
And Adam Davidson, NPR News.
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