Abstract: The mechanism of industry cluster is studied, and two cases of cluster process known as Cambridge phenomenon are analyzed. Based on this, some disciplinary understandings are found as below. Firstly, knowledge spillovers destroy the normal Hotelling process, and lead to regional industry cluster. The density of cluster is inversely proportional to the damp of knowledge spillovers. When production costs increase close to its price, the industry cluster is easy to appear. Secondly, it is easier for small and medium-sized enterprises to cluster than for large-sized enterprises. Thirdly, there is an optimal spatial scale, which depends on workers’ wage, rent of land, supply-demand relationship of land, etc. The scale of a cluster cannot develop wantonly. Fourthly, labor intensive firms and human resource intensive firms occupying small sized land are more inclined to cluster. On the other hand, traditional large-sized companies are hard to cluster. Finally, industry cluster is a kind of complex phenomenon, which has the character of emergence.  

Key words: industry cluster, Cambridge phenomenon, Hotelling process, knowledge spillover