Structure Conduct Performance

Structure-Conduct-Performance (SCP) is a paradigm coming from industrial economics (1960s and 1970s).

It states that performance (of entire markets and of firms operating in these markets) depends on various elements of market structure (e.g. entry barriers, market concentration, and number and size of competitors), as well as different forms of firm conduct and strategic behaviour (e.g. capacity utilization, marketing, innovation).

The framework is an interesting one to describe an industry (e.g. if you are looking at a potential acquisition opportunity which is a bit outside of your core markets), and get a better understanding of what’s happening and why. A number of academics have worked with this framework, and developed quantitative measures of market concentrations, to then study how this affected conduct and performance.

But the attached example shows that the SCP framework can also be used descriptively, and the key words listed on the first PPT page are a good checklist to remember.

One criticism of the framework: It is obviously quite deterministic and linear. Structure is the exogenous (explanatory) variable, everything else is dependent of that. In reality, structure itself is probably also affected by firms’ conduct.