The Copy Effect

Illustration by Ayo Arogunmati

If you want to compliment an artist you can say the art is new, original, creative or it gives you a feeling [1]. But don’t call it a copy. There is a strong dislike in our culture for art that imitates. As a consumer, I often criticize artists that are copies of each other even though the things I like I copy [2].

What I’ve observed is that we are not as critical of businesses although they are often copies of each other. And tend to locate in the same geographic space.

Business owners would argue that they are in business to make as much money as they can [3]. I think most businesses are not. Yes, the owners want to make money, but their decisions are in opposition to maximizing profits. Even in a regulation free environment, I think people are more likely to start the most competitive businesses, in the same geographic area, using the same tactics as their competitors.

There’s a street in Toronto called Eglinton that travels from east to west [4]. Eglinton is a four-lane road but with the unending construction only two lanes are accessible. Travelling west, you’ll notice a string of shops stretching for about ten kilometres on the north and south side of the street [5]. This short strip is known as Little Jamaica, a name to describe the concentration of Jamaican residents and shop owners who settled in the area in the 1950s [6].

Most local communities have their version of Little Jamaica – the businesses are often located in an area with the highest density [7]. Each business adjacent to the next compete in and for the same market. The store front signs can help you tell the stores apart but there’s also a sameness present – the typography, design and style are alike.

My guess is that if a new regulation banned all store front signs, it would be difficult to tell the shops apart. Two questions emerge from this hypothetical ban: why do people start similar businesses? And why do they choose to locate next to each other?

I remember the first time learning about supply, demand, and competition and how these variables influence the price of an item. The model suggests that oversupply and excessive competition in a marketplace will lower prices. And if this market dynamic continues, there’ll be no profits. However, the way entrepreneurs behave disagreed with the model. Entrepreneurs chose to start similar businesses and locate next to each other, two decisions in conflict with the idea of maximizing profits.

There’s a famous business researcher, Michael Porter, who has explored an idea known as Location Paradox [8]. He assumed that with a global network to sell your product, faster transportation and almost zero latency in communication, similar businesses would be less concentrated in a zone. But he discovered that businesses chose their location based on rational factors like a common market to sell to, easier interaction with suppliers and better pool of workers.

Location Paradox appears almost always at a local level and even big business displays this behaviour. Examples include financial firms on Wall Street, technology startups in Silicon Valley, and studios in Hollywood. The same paradox is seen globally at a local level, like the concentration of fashion houses in Paris.

The factors that drive location decisions strike me as a bit too rational for the average person. I think the behavioral component is unaccounted for. There’s this other idea known as the Hotelling Law, which describes how two shops on opposite sides of the street will move closer to the middle of the street to stop the other store from stealing customers. The businesses don’t have to be different or better, they just need to have a correct idea of what their competition will do.

The information about competition and the signaling to customers in a location overrides maximizing profits.

Before the competition and location choice, the choice of business to start comes first. I argue that the choice is motivated by more subtle factors like choosing a business that you like and a business that is relatively safe to enter and exit.

I was alerted to how behavioral factors influence choice when a close relative decided to open a shop next to their competition. My suggestion was to find a new location, build relationships with suppliers and cultivate new customers. They disagreed, proceeding to choose the same location, suppliers, and market as their competition. But the store front sign was different.

The existing shop owners were unhappy with a new shop, complaining about the loss of market share and profits. What was puzzling about their reaction is the presumption that they chose their business and location to maximize profits. But their choice was like my relative. They were seeking safety and signalling over maximizing profits.

To minimize the risk of failure, businesses copy what they like and choose locations to signal to the market that they are not too different from other similar businesses.

I’m starting to rethink my criticism of artists that are copies of each other. It seems their decision making is similar to what businesses are seeking, which is safety and signalling.

I rarely hear complaints that there are too many of this type of shops, but I often hear there are too many of this song, artist, or films. The copying is more visible to us maybe because art asks for a deeper emotional effort than businesses. However, at the centre of both activities are people and people like copying.

Notes

[1] My guess is this is why artists care about the best new artist award.

[2] I'm working on being more independent minded or at least recognizing when I'm not.

[3] Profits not revenue.

[4] Eglinton is really an avenue not a street

[5] Approximately 5 Miles

[6] https://en.wikipedia.org/wiki/Little_Jamaica

[7] In Journal Square, Jersey City, is India Square, a row of shops owned and operated by South Asians

[8]https://hbr.org/1998/11/clusters-and-the-new-economics-of-compeititon

[9] There are also specific artistic clusters like New York where arists can gain from the scale and scope benefits of the city - Music scenes music clusters: the economic geography of music in the US, 1970-2000; Richard Florida, Charlotta Mellander, Kevin Stolarick

[10] The pursuit for businesses and artists is to be the one copied by others