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girlofscience's avatar

Why do competing businesses (e.g., gas stations) so routinely situate themselves in close proximity with each other?

Asked by girlofscience (7532points) July 23rd, 2008

I think someone tried to explain this to me before, but I don’t remember being satisfied with the answer. I’d say the business world is my least knowledgeable area (aside from sports), so I’d appreciate input from those who may have a better understanding of business. With gas stations especially, people (at least I) usually just go to any convenient (or inexpensive) station when they need to fill up, but so often, I see 3 gas stations at one intersection. Often times, they are situated in such a way that 2 or more are even equally convenient for the same lane of traffic. As a non-business-expert, I’d naively assume that such a decision would be bad for business and cut down on profits, as they’d be shared with the neighboring stations. Can anyone explain how this situation is desirable for businesses?

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13 Answers

flyawayxxballoon's avatar

This is often done so that they can easily compete with each other. Say one gas station is charging $4.10 for gas, but the one across the street is selling it for only $4.07. This gives the cheaper gas station easy business. When people see that the cheaper gas station is full because they have more business, they’ll be forced to go to the more expensive gas station if they want to fill up any time soon. Then there’s the gas station that’s charging only $4.01, but they only take cash. This is either easy business for them or easy business for the other gas stations, depending on whether the customer has enough cash or not.

girlofscience's avatar

@flyawayxxballoon: Why do they want to compete with each other in the first place? Wouldn’t they rather be the only one around and receive all the business by default? Furthermore, I have often seen this situation with all of the stations having exactly the same price!
I see your point, but I don’t see how it is more advantageous than being the only gas station at an intersection.

flyawayxxballoon's avatar

@girl ; My guess is that they’re usually located on busy roads, and they’re just close together. Also, business districting can also force them to be in the same general vicinity.

syz's avatar

Pet peeve: proximity actually means “close”.

girlofscience's avatar

@syz: Is it correct to say, “in proximity,” instead? I definitely hear “in close proximity” much more often, but of course that doesn’t mean that’s correct. And I’m always glad to hear more grammar pet peeves so I can avoid them in my writing in the future. Thanks!

astrofoo's avatar

There’s an article on AdAge a few months ago that says polls show that people buy gas based on brands more than price. (Link, but reg required).

Also note that people get discounts on gas with certain credit cards at certain gas stations or maybe you prefer the coffee at QuikTrip over RaceTrac. There is plenty of business to go around.

syz's avatar

Yes, “in proximity to” would be considered correct (although gailcalled is our resident grammar guru).

ketoneus's avatar

They could all be needed in order to meet demand. flyawayxxballoon hinted at this in his/her answer. One gas station might be so overwhelmed with customers that they would actually have to turn away business. Also as mentioned above, zoning may play a big part in why you see this.

Trustinglife's avatar

This is a great question. A related question I have that I think is on-topic… near my house there are two gas stations across the street from each other. One of them ALWAYS is more expensive than the other. Even if there is a 10c price change, one will still be 2 or 3c more expensive than the other. It’s almost as if they’re in cahoots to put the expensive one out of business. And not surprisingly, there’s rarely anyone in there, and the cheaper one is often full. Huh?

flyawayxxballoon's avatar

@trusting ; This may be because the more expensive one doesn’t make enough profit, so they have to keep the price a little bit higher, even if it means losing some customers. Other than that, I can’t think of a single reason why that would be.

qashqai's avatar

In my opinion, Gas Stations does not follow the basic rules of business.
This happens because Oil is not something you can live without (I correct myself, is something the average person cannot live without). If I recall correctly, Oil price has a relatively low elasticity, that is if the price gets higher, demand doesn’t get lower but remains constant.
That said, I would add a pinch of statistics. Even though my gas station has higher prices than yours on the other side of the road, statistically there will be always someone that will get through my pump and pay my price, simply because maybe his or her car cannot arrive to my competitor gas station or because to do that he or she will have to do an unconfortable manouvre, and so on. Multiply that for the number of cars that are going around in your city and you are done.

El_Cadejo's avatar

I know everyone keeps talking about gas stations, but they arent the only type of business that do this. Ive never understood it either like girlofscience said, Id rather be the only shop in town rather than sit next to three of my competitors.

aphilotus's avatar

I once thought up a word for such arrangements- a juxtapoly.

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