While driving through Cocoa Beach yesterday, we passed a famous surf shop called Ron Jon's. If you have ever driven on I-95 South through Florida, you will see a billboard every few miles telling you how far it is to Ron Jon's surf shop. It's a cool place right on A1A that is open 24 hours.
There are lots of other surf shops around, but a couple of years ago one named Cocoa Beach Surf Company decided to set up right next door to Ron Jon's. Initially I thought it was stupid to set up right next door to their primary competition. Then I realized – that was all part of their strategy.
They set up a tent initially, and many people thought it was just a Ron Jon outdoor sale. Now they are building a huge store in place of the tent, so they must be doing well. Ron Jon does all the advertising, and Cocoa Beach Surf Company gets some of their overflow business. They didn't move next door to attack Ron Jon's (my guess is that they want Ron Jon's to remain successful), they moved next door to feed off of Ron Jon's.
How does Ron Jon's compete in this situation? I'm not sure it matters. There is problemably enough business for both. And I wouldn't be surprised if there is a little informal price collusion going on.