In reality, there’s nothing particularly unusual about similar firms clustering together. Auto companies were all near Detroit for a long time; high-tech firms huddle in the Bay Area; And nightlife hubs arise for similar reasons. Drinking and dining establishments want to be where people are likely to look for them. And people want to go to places where they’ll find options. Complicated interdependencies and complementarities can arise. The late-night pizza joint’s proximity to the dive bar increases the value of both. Alternatively, you might want to meet friends for dinner in a neighborhood where you’re also likely to be able to grab a drink afterwards. Theaters and live-music venues benefit from proximity to other after-hours activities and also drive customers to bars and restaurants. Forcing the cluster to disperse destroys its value. Preventing new firms from entering the cluster fosters high prices and mediocrity, as underperforming bars and restaurants can essentially free-ride on the rest of the cluster.
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