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Abstract

My dissertation seeks to explain the puzzle of the sustained domination of small shops over large companies in a highly volatile apparel production market in China. Three major elements of the market are analyzed—explosive fashion in seasonal production, off-season production, and clearance transactions. For explosive fashion, the study showed that it is a recurrent phenomenon mediated by an external institution—the sample marketplace. I show how the sample marketplace connects and coordinates the behavior of manufacturers and how it can generate repeated fashion waves. Large firms end up having a lower chance of hitting explosive fashion because their organization of production is in conflict with such external institutions. Explosive fashion is a typical r-strategy phenomenon, which in theory should be gradually transformed into more institutionalized, more stable forms as the market evolves. Yet the transition seems stagnant. To understand why gambling-like practices couldn’t be selected out through competition, I move towards the "grey" part of the market—the clearance market— and demonstrate that instead of being an auxiliary device secondary to the primary market, the clearance market is actually the most pivotal component of the industry. It enables liquid transference of uncertainty to risk-takers (middlemen). The dual-exchange system in the local market triggers periodic "mini-crises" in every production season resulting in the absorption of a great number of newly made products into the clearance market in advance. This had two consequences. For one, it provided a safety valve for small shops chasing after "explosive fashion." As "hedgers", they could easily gamble for success while compensating their failures through quick clearance. Liquidity had fermented opportunism among manufacturing shops and prevented most of them from developing into elaborate modes of production. Because small shops were resilient against adversaries, unlike many other apparel industries, they could also keep themselves from being controlled by large companies. The second consequence is that the clearance market also limited the profitability of explosive fashion on average. Although the myth of the overnight millionaire continues, the prolonged clearance period in advance of the consumption season compressed the period of normal business. As a result, profits and market shares were shifted from the client market to the wholesale market. This secondary market became so colossal that the tail was wagging the dog. Finally, the inflated clearance business also affects leading apparel firms in off-season production. The impact is the sum of a set of structural conditions related to the mismatch between apparel and fiber cycles, which further limits the power of leading firms. Overall, the study provides a unique case study of an enduring market structure that suppresses the tendency toward hierarchy and institutionalization.

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