I think a lot of this depends on the details of conversations. For example:

Did you all discuss any of these issues and when (rights to certain areas, working together vs separate, etc)? You stated you agreed to market together at some point.

Did friend2 mislead you at any point?

From the limited information it sounds like at very least you all should have discussed more details earlier on. There could be some douchebaggery going on from friend 2 but I can't tell for sure based on the info. For example, both people knew how to provide a service in the beginning and I don't think one person deciding to market it should prohibit their friend from trying to market their skills as well. It would be different if friend 2 didn't know how to perform the service and then friend 1 taught them. Also, if they both live in the same area, did friend 1 expect friend 2 to have to go to some other part of town to perform the service?