Which theory predicts that firms cluster in a way to maximize market access, leading competitors to position near each other within a shared customer base?

Which theory predicts that firms cluster in a way to maximize market access, leading competitors to position near each other within a shared customer base?

• A. Locational Interdependence Theory
• B. Least Cost Theory
• C. Weber's Model
• D. Hotelling's Theory

Answer: (A)

Firms’ location decisions are interdependent: when customers are spread across a market, each firm seeks to be where it can access the largest shared customer base, but because rivals’ positions affect how much of that base each firm captures, they respond to one another. This interdependence drives clustering, with competitors locating near each other to tap into the same pool of customers. In short, the theory describes how spatial competition leads to firms positioning close together to maximize market access.

Firms’ location decisions are interdependent: when customers are spread across a market, each firm seeks to be where it can access the largest shared customer base, but because rivals’ positions affect how much of that base each firm captures, they respond to one another. This interdependence drives clustering, with competitors locating near each other to tap into the same pool of customers. In short, the theory describes how spatial competition leads to firms positioning close together to maximize market access.