Most industrial economics is conducted within the so-called ‘Structure-Conduct-Performance’ paradigm”. How useful is this paradigm and what are its implications?

Running Head : Structure-Conduct-Performance ' paradigm

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Introduction

The structure -conduct - performance (SCP ) paradigm is an essential tool of contemporary industrial economics . Structure -conduct-performance (SCP ) paradigm , which dominated the industrial organization field during the third quarter of the 20th century and still serves as a basic framework in many studies on market power profitability relationship argues that the performance of an industry is determined by the behavior of suppliers and buyers , which in turn is determined by structural attributes of the market in which it

operates (Hannan T . H , 1991 . The S-C-P paradigm was developed to explain and predict industry level phenomenon and makes the assumption that all the firms within an industry are homogenous . Structure conduct performance theory is a model used to link elements of market structure to business conduct and performance in industrial economics . It explains how industry structure depends on basic conditions of supply and demand , and that structure in turn determines the behaviors of firms (Ellis

, 2000 . This structure conduct performance paradigm has led to concern about the malign effects of monopoly and the exercise of market power

It states that market performance depends on various elements of market structure , which includes entry barriers , market concentration , and number and size of firms , as well as different forms of firm conduct and behaviour of such as capacity utilization advertising and collusion . The primary approach of examining market-performance relationship has been known as structure- conduct-performance (SCP ) paradigm . It postulates that certain market attributes e .g . barrier to entry and market concentration affect company conduct or behaviour , which in turn has impacts on company profitability within the relevant market (Wint M . B U Solberg 2000 . The paradigm emphasizes on a one way casual relationship where the structural characteristics of an industry determine the conduct or behavior of firms in that industry , which in turn determines measures of performance such as profits rates

Market structure refers to the number of firms competing in the industry concerned , when there are a greater number of firms in a given market the competition would be more intense (Ford D , 2002 . The traditional view in industrial organization is that structure affects behaviors of firms as to pricing and investment , which eventually determine the quality of the good offered and the prices that consumers pay . Structure refers to the market structure defined mainly by the concentration of market share in the market . Conduct behavior of firms may be competitive or collusive and it includes pricing , research and development advertising , production , choice of technology , entry barriers , predation among others . Performance is the social efficiency mainly defined by the extent of market power

The paradigm of structure conduct performance is based on the following hypotheses . Firstly , that structure influences conduct this implies that the lower the concentration the more competitive the behavior of firms It is also based on the hypotheses that the conduct influences performance where there is more competition there is less market power implying greater social efficiency (Ford D , 2002...