Abstract
Industry cluster may be defined very generally as a group of firms in which each member's competitive success depends on one, some, or all other members of the group. This paper discusses the formative causation and operating mechanism of industry cluster based on the perspective of transaction cost theory. It argues that industry cluster as a range of institutional arrangement and organizational form between corporation and market, its existence and development can be explained by transaction cost theory. The emergence and growth of industry cluster is essentially a sort of innovation of inter-firm transaction or contact, which is necessary for saving transaction cost. In other words, it is a new system form that can effectively reduce transaction cost.
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