Industrial clusters are real-life groups of businesses in the same area, not controlled by one company. They operate like markets, not hierarchies. The idea that clusters are like a mix of markets and hierarchies is common, but markets are more than just buying and selling. Transaction costs show that markets have their own characteristics. Clusters are a specific type of market organization based on location. They help businesses trade goods, services, and knowledge efficiently within the group while still connecting with suppliers and customers outside. The institutions in clusters make it easier for businesses to share and use local knowledge.