 Also known as structure-conduct-performance model

 UNIT OF ANALYSIS - INDUSTRY, Firms as identical

 Structure: Industry structure determined the behaviour of firms whose joint conduct
then determined the collective performance of the firms in the market- place
 Performance was broadly defined and in the economist’s sense of social
performance, encompassed dimensions of such as allocative efficiency (profit),
technical efficiency (cost minimization), and innovativeness.
 Conduct – ECONOMIC DIMENSION OF FIRM STRATEGY was the firm’s choice of key
decision variables such as price, advertising, capacity, and quality.b
 The implications suggested by theorists of this tradition were fairly
simple (Barney 1986). Firms seeking to obtain high returns should
focus on creating and/or modifying the structural characteristics of
their industry to favour high returns
 In a nutshell, the aim of organized behavior from this perspective was to shield the
firm to the maximum extent legally possible from competitive force

If this theory works, then why other ones?

 the internal workings of contemporary organizations have been treated, for the
most part, as black boxes
 assumes a one-way causal relationship from the market structure to the
performance variable – NOT the Other way around,
o Performance -> Conduct -> Structure
o External shocks such as regulation impacts performance and then determines
the structure and conduct of the industry – Performance -> Structure

Other Material

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-
insights/enduring-ideas-the-scp-framework

Who
 1950 - Harvard economist Edward Mason, in the 1930s, and of his doctoral student
Joseph Bain
 Used by US Government in drafting anti-trust policies – By using SCP framework they
analysed whether the industry requires any regulation whether to tighten up the
rules
 1980 - the model gained popularity among corporate strategists when Michael
Porter (Competitive Strategy, 1980) used it as an analytic tool for businesses
striving to compete within a market.
 influence of an industry's structure (for example, the growth of demand and barriers
to entry) on the conduct of producers (pricing, for example) and the performance of
both the industry and the producers.

Descriptive power of SCP - Explains 70% of the differences in Profitability across industries
according to the structural features of the industry
Structure:
 Those things which are fairly slow to change over time
o Barriers to entry
o Number of competitors
o Cost structure of the industry
 Fixed and variable costs
o GROWTH RATE IN DEMAND

Conduct: Changes more often than structure

 Pricing
 New product strategy
 Changes to capacity
 M&A Behaviour
 Innovation
 R&D Expenditure
 Advertising decision

Performance:
 Mainly it is the Financial performance
 Quality of customer service
 Strength of the brand
 Growth

https://www.scribd.com/doc/68759274/L2-Structure-Conduct-Performance-Paradigm

Conduct
 Conduct refers to the behaviour (actions) of the firms in a market, to the decisions
firms make and to the way in which decisions are taken.
