INDUSTRIAL ECONOMICS IInd S C P MODAL

The Structure-Conduct-Performance Model

In 1930s, a group of economists developed an approach to understand relationship among a firm’s environment, behaviour and performance. This theoretical framework, since then, is known as the Structure-Conduct-Performance (S-C-P) Model.

Structure, in this model refers to the structure of the industry in which the firm is operating. According to their findings, following factors could be used by a firm to measure the industry structure it’s operating in.

• Number of Competing Firms
• Homogeneity of Products
• Cost of Entry and Exit

Conduct refers to the set of strategies that the firm implement to gain competitive advantage over its rivals.

Performance in the s-c-p model has two meanings:

1. Performance of the individual firm
2. Performance of the economy as a whole

The Link Among Structure, Conduct and Performance

Attributes of the industry structure define the range of options and constraints a firm has to face. In highly competitive industries, firms have a very limited motion space as they are only let with a very few options too many constraints when compared to options. In such setting, both firm’s conduct and long term performance are determined by the industry structure making (in general) firms only able to gain competitive (not competitive advantage).

On the other hand, in less competitive industries, firms have the liberty of large ranges of conduct options and fewer constraints, enabling capable firms to gain competitive advantages. However, even at this type of setting, the industry structure can impact on firms critically such as deciding how long a firm can maintain its competitive advantage.