We develop a game-theoretic model to explore why retail clusters are so popular in developing economies and when governments should facilitate the formation of retail clusters to improve social welfare. First, we find two determinants of retailer clusters: the valuation-cost ratio (consumers’ maximum valuation over retailers’ production cost) and retailer density (the number of retailers over unit transportation cost). The valuation-cost ratio and retailer density indicate retailers’ profit potential and competition intensity, respectively. Second, the equilibrium cluster size increases in the valuation-cost ratio. This finding explains the phenomenon that clusters are usually larger in developing economies (where numerous retailers sell unrecognized brands with low profit potential) than in developed economies. Third, when the retailer density of a product market exceeds a certain threshold, the market coverages of clusters overlap with each other (i.e., the overlapping case). Furthermore, when compared with the nonoverlapping case, the equilibrium cluster size in the overlapping case is larger for low-profit-potential products but smaller for high-profit-potential products. Together, valuation-cost ratio and retailer density define four types of clusters: overlapping massive clusters, nonoverlapping large clusters, nonoverlapping small clusters, and overlapping mini-clusters. Finally, the socially optimal cluster size is larger than the equilibrium cluster size, and the gap between these two cluster sizes decreases in the valuation-cost ratio.
Dr. Chao DING
Academic & Professional Qualification
- PhD: University of Florida
- MSc: The Hong Kong University of Science and Technology
- BBA: Sun Yat-sen University
Chao Ding obtained his Ph.D. degree in the Department of Information Systems and Operations Management in Warrington College of Business and Administration at University of Florida in 2014. Dr. Ding holds a B.S. in optical engineering from Sun Yat-sen University and an M.S. in Economics from Hong Kong University of Science and Technology.
- BUSI0036 – Quantitative analysis for business decisions
- IIMT3636 – Decision and risk analysis
- IIMT2601 – Management information systems
- MSBA7001 – Business intelligence and analytics
- Social Media
- Internet Financing
- Information Goods
“Click to Success? The Temporal Effects of Facebook Likes on Crowdfunding” with Y. Jin, Y. Duan, and H.K. Cheng, (2020), Journal of the Association for Information Systems, 21(5), 1191-1213.
“Retail Clusters in Developing Economies” with X. Zhao, A. Lim, H. Guo, and J.S. Song, (2019), Manufacturing & Service Operations Management, 21(2), 452-467.
“To Join or Not to Join Group Purchasing Organization: A Vendor’s Decision” with Y.C. Yang, H.K. Cheng, and S. Li, (2017), European Journal of Operational Research, 258(2), 581-589.
“The Power of the ‘Like’ Button: The Impact of Social Media on Box Office” with H.K. Cheng, Y. Duan, and Y. Jin, (2017), Decision Support Systems, 94, 77-84.
Awards and Honours
HKU Business School Undergraduate Teaching Award 2018