Do the Google Quality Guidelines on duplicate content penalize a company for creating similar sites with Region/city specific differences but otherwise the same message?

Quality Guidelines - Specific recommendations:

Don't create multiple pages, subdomains, or domains with substantially duplicate content.

I appreciate that Google promotes creating/writing pages for users and not for search engines but I can't understand why 1 would be penalized for Creating:

cincinnati-widgets.com and columbuswidgets.com

with largely the same widget information but different contact, legal, and widget regulatory information for the 2 different cities.

If I am writing or creating a site for users in Cincinnati they would never find it if it didn't focus on Cincinnati. If I also had customers in Los Angeles they'd never find my site if it was focussed on Cincinnati or had no regional focus at all. That would be like trying to sell a cincinnati newspaper to Cincinnatians from a newstand in Los Angeles or Washington, DC. That means I am not writing pages for users or search engines because no matter how valuable the content is no-one will ever see it.

So I have 2 questions:

Does Google penalize companies that have multiple sites for the same product but targeted at specific regions?

If the above is true how does 1 create 1 site that can capture attention and rank well on searches specific to those different cities and geographical regions??