The Structure Conduct Performance Model and Competing Hypothesis- A Review of Literature

Tesfaye Boru Lelissa


Industrial Organization (IO) is concerned with the structure of industries in the economy and the behavior of firms and individuals in these industries. This theory has not only grown within its field, but also in others, such as business management especially in the areas of strategic management.  The Structure Conduct Performance (SCP) paradigm appears to be the most pertinent and long time used approach to assess industry structure studies. It basically attempts to look at the market structure of industries and determine their conduct and performances. Various theories that challenged the SCP are also witnessed including the efficient hypothesis, contestable market theory and quiet life hypothesis etc. Even in recent period, a reverse approach to look at the structure and performance of a given industry by observing the conduct of firms has emerged. In other words, the new wave of research like New Empirical Industrial Organization (NEIO) set out to understand the institutional details of particular industries and use this knowledge to test specific hypotheses about specific firm behavior. Nevertheless, NEIO appears to be the alternate paradigm for imperfect market analysis than the one totally revoking the methodological approach of the SCP, in fact with friction between the two paradigms.  Some authors like Bhuyan (2014) has compared these two methods of analyzing market power and concluded that the debate over the use of the SCP approach versus the use of the NEIO approach to analyze market power will continue. The debate however is not only among the aforesaid paradigms but still there is unresolved inconclusiveness among the structural theorists like SCP and efficient market theorists.

Keywords: Structure, conduct, performance, Industrial Organization

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