Structure Conduct Performance Model - Explained
What is the Structure Conduct Performance Model?
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Table of ContentsWhat is the Structure Conduct Performance Model?How does the Structure Conduct Performance Model Work?Academic Research on Structure Conduct Performance Model
What is the Structure Conduct Performance Model?
The structure conduct performance model refers to an analytical framework that explains the connection between economic or market structure, market conduct and its performance. This is a concept or model in Industrial Organization Economics that examines and describes the interaction between organization structure (environment), organizational conduct ( behavior) and organizational performance (achievement). The structure conduct performance model presents a causal theory explanation of these three concepts. It presents, their strengths, characteristics as well as downsides.
How does the Structure Conduct Performance Model Work?
The SCP model or paradigm is a crucial aspect of industrial organization theory. This model was first published in 1933 by two economists Edward Chamberlin and Joan Robinson before it was later developed by Joe S. Bain in 1959. The SCP model examines the interplay between three major components of an industrial organization which are structure, conduct and performance. As developed by Joe S. Bain in 1959, SCP paradigm was considered as a pillar of the industrial organization theory because it serves as an analytical framework for analysing the major elements of market. Market structure and conduct are major determinants of market performance. There are three elements or variables of market that are considered important as they influence market behaviours exhibited by both buyers and sellers. These elements are structure, conduct and performance.
- Structure - this refers to the construction, formation and the makeup of an industrial organization. It also describes the kind of environment in which an organization or market operates.
- Conduct - this describes the behavior or comportment of buyers and sellers to the structure of a market. It also refers to the way buyers and sellers interact with each other and the way they behave.
- Performance - this refers to the achievement or accomplishment or results of a particular market or industry. Performance variables that are considered in the market include product quantity, product quality, and production efficiency.
However, due to the effects of the behaviours of buyers and sellers on market, it is often difficult to predict market structure. Also, the multiple definitions and extension of markets and its structure make an inquiry into this paradigm more complex. Some studies also establish that the structure of the market will always be determined by the nature of the product and the technology available. Oftentimes, people tend to ask when the SCP model becomes useful. The SCP model is very useful in analysing a non-changing industry, it is also useful in the prediction of the effects of external shock on an industrys profitability. It is useful in the analysis of the response of an industry's structure to price conduct and vice versa. It studies whether structure drives performance and also influence conduct. Also, any inquiry into structure, conduct and performance of an industry or a market makes the SCP model useful. This model can be used to justify consolidation in the industry. It also helps in the analysis of the effects of a more attractive industry structure on the performance of the industry. This is an example of how to analyse the structure, conduct and performance using the SCP model. First is a highlight in structure which includes an analysis of the Industry concentration (Herfindal index), minimum efficient scale, the market share pattern and the ownership of major companies in the industry. Second is a highlight in conduct which reflects why industries compete in prices, services and product innovation. It also looks at the stability of the conduct and different strategies displayed by players in the market. The notion of good competitors and bad competitors are also explored. Third is a highlight in performance such as return on capital employed, economic profit, shareholders returns and others. It also entails an analysis of factors responsible for certain performances in the industry.