Starbucks vs Pret-A-Manger: a Hotelling Game

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Why do Starbucks and  Pret-A-Manger (or Coffee Bean) often have their shops next to each other? Or the same phenomenon with McDonald’s and KFC? Why do you see competing banks clustered along the same road?  Surely, you think it would make more sense for two similiar and competing firms to locate themselves as far away from each other as possible. Yet, all these firms with a clear profit motive often behave in a manner that contradicts seemingly intuitive logic.

We need to figure this out. So let’s play a game.

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