In this blog post, we will look at how the cluster effect that occurs when similar stores gather in one place benefits consumers and sellers.
When you go to a market or department store, you can see stores selling the same items gathered together. It is easy to think that when stores are clustered together like this, competition will become fierce and sales will decline. However, this is not actually the case. When stores are clustered together, they can sell more products, which is actually beneficial. This phenomenon is called the “clustering effect” in economics, and it explains why it is beneficial for both consumers and sellers when stores of similar types are clustered together in a specific area. So how can clustered stores sell more products than stores that are located alone?
First, the cluster effect provides consumers with more choices, thereby expanding their range of options. Consumers can compare products from various stores, giving them the opportunity to purchase higher quality products at lower prices. This increases consumer confidence in the area, which naturally leads to an increase in customers.
Second, when similar stores are clustered together, consumers perceive the area as a “specialized commercial district.” For example, if there are several computer stores in one place, consumers will perceive the area as a “computer shopping center” and will visit there when they want to buy a computer. In this way, areas with high trust and expertise in specific products attract more consumers, which in turn increases the sales of individual stores.
Purchasing a product without information about it can result in losses, so rational consumers try to purchase products based on information. Therefore, consumers spend money to search for information and obtain benefits from this information. The benefits referred to here refer to the profits obtained by purchasing the same product at a lower price or a higher quality product at the same price through the search process. However, the problem is that searching for information costs money, so it is necessary to determine the appropriate level of information search.
Suppose that when buying a computer, a person searches for one unit of information at a cost of $10 and purchases it for $30 less than the price they initially intended to pay. The consumer has gained a benefit of $20 by searching for one unit of information. Since the consumer had no information about computers and obtained information for the first time, the benefit is significant. However, if this consumer searches for one additional unit of information, the situation changes. This is because the more information they obtain, the more they learn about the product, so the search cost of obtaining information that is more useful than the current information increases, while the additional profit decreases. Therefore, when searching for the second piece of information, the cost increases from $10,000 to $20,000, and the savings decrease from $30,000 to $20,000. In this case, consumers will not search for any more information.
In addition, when stores are clustered together, sellers become aware of each other’s existence, which naturally promotes competition. This encourages sellers to strive to provide better service and quality, which ultimately results in a better shopping experience for consumers. Satisfied consumers return to the area, which also benefits sellers.
Ultimately, the clustering of similar stores does not simply lead to competition, but also has a positive impact on each other, contributing to the revitalization of the market as a whole. This phenomenon can be confirmed not only by economic theory but also by actual experience, and it is a structure that benefits both consumers and sellers.
