1. cluster and differentiation: For example, the suppliers of seafood cluster into several groups. Within each group the suppliers specialize in different varieties of seafood. One seller supplies shell fish. One of his neighbors may supply crabs. The other neighbor may supply frozen seafood. There is differentiation within each seafood group. Next to the seafood group, there is the poultry group. Again, there is differentiation within that group.
This arrangement is effective for two reasons: It helps to achieve economy of scale. The cluster of seafood suppliers attract more customers than individual suppliers. Second, the differentiation of products reduces competition within each cluster thus reduces conflicts between competitors. I suspect that we can observe similar arrangements for industrial cluster. I shall test this when I visit industrial parks!
What would happen if she finds her favorite sellers cheating? She would stop going to the cheating sellers for a while. Then one day she might come back. The sellers would ask:"What's up? I haven't seen you for a while. " My mother would complain that either their price is too high for returning customers or the quality of their products is getting worse. So the sellers would immediately apologize and give her better deals. I believe this phenomenon has been modeled by game theorists already. See punishment in repeated games.
These are methods used to resolve the hold-up problems. Is vertical integration the only way to resolve the hold-up problems?