Getting NASHty

Roaming around in one of the crowded inner markets of Bangalore, I found it too difficult to get through, especially with a vehicle to escort with me, which was more of a problem than actually helping ease it. God bless those poor ones who had to make their cars penetrate the confusing and crowded markets, where getting lost is not a big deal at all.

The dictionary would describe markets as a place where buyer and sellers interact to exchange the possession of goods or services by either transfer of a good (as in a barter system) or the equivalent of the good (currency notes/gold, etc). In marketing terms, a market is nothing but a collection of consumers.

Leaving the definitions aside, a market is one of the most happening places in any city. Shops swarm every nook and corner meeting the eye. One thing that is similar in all sorts of market is, similar shops (as in selling the same product) clustered in one lane. And so it’s not a surprise when you have electronic lane, paranthe wali gali, kasai mohalla etc like places in many parts of the country.

But why they have to be there all in one place?

Won’t it affect their businesses with increased competition??

The consumer will have numerous options to go ahead and randomly go to a shop. Then why follow this pattern??

Let’s just take a little help from what John Nash in answering this question. Who is John Nash? You can read it here.

I’ll just try to keep it simple by imagining you to think of a market with just two shops, selling the same product. For e.g., say cold drink. Now, this market is in the middle of a big city and people can come and go from both ends. If suppose Mr. X starts his business by putting up his stall near one end of the market space, he is sure to gain most of the customers from that end, but the customer staying at the other end would find it tasking to go all the way to the other end.  Suppose to capture the customers from the other end, Mr. Y puts up another stall selling cold drinks to the other end, and then people of the other end will visit his stall to thirst their throats with colas. This way Mr. X loses out to Mr. Y many of his customers from the other end. But then, Mr. X decides to shift his shop to the middle of the market so as to get the market share that it lost to Mr. Y. Of course, he would definitely end up increasing the whole share. But seeing this, Mr. Y would also shift his shop from one end to the middle, almost next to Mr. X. This way both end up being adjacent to each other, by finding equilibrium point to maximize their sales.

Now, just use the example above to think of a market place where most of the shops are placed in almost in the same lane. John Nash devised this concept and it is called, “Nash equilibrium”, which is defined as “a pair of strategies (a*, b*) in a two-player game such that a* is an optimal strategy for A against b* and b* is an optimal strategy for B against A*.

So, the next time you visit any electronic lane or a paranthe wali gali, you can remember Nash and his equilibrium concept to know, why it is so.