"they still compete with each other to some extent."
Maybe, maybe not.
Depends on their business model, whom exactly their customer base is, and whom they are aiming for.
Buddy of mine ran a "hard core" club--age 18-35 avg, hard contact, plenty of sparring, really hard workouts. Another club on the other side of town was a "family" place, lots of kids with their parents, short classes, not much sparring and it was heavily padded, classes were not all that tough from an objective POV.
And they both were the same style.
I would agree that "martial arts" in general, might, just might be in oversupply---depending on where you are located.
But a good business owner understand market differenation and how to use it.
Of course that presumes a "good" business owner