By Dr. Maurice Yeates, Andy Charles and Dr. Ken Jones

Since the days when merchants first traded and sold goods in the bazaars and markets of antiquity, externalities have played a vital role in the economics of commercial enterprises.  Externalities are the fundamental reason why retail stores and other types of consumer service activities, which may individually be competitive with each other, cluster within markets.  Positive externalities convey to individual store/outlets a higher rate of return on capital than they would otherwise have generated in isolated free-standing locations.  A higher rate of return is achieved because the aggregate market generated by a store located in a cluster is usually greater than that which can be achieved if the business were in an isolated location.  In short, by clustering, commercial activities generate benefits for each other.  Transport, other types of infrastructure, and a regulative environment, evolve to reinforce this inexorable tendency.