A Critique of the Structure Conduct Performance Paradigm (Scp)
A Critique of the Structure Conduct Performance Paradigm (SCP)
• The SCP approach draws on theories of market structure. These theories can be adapted to examine the behavior of firms and industries. However, these theories do not always give us exact relationships between structure, conduct and performance.
• Structure can be measured by a multitude of indicators. Unfortunately, many economists tend to measure structure by concentration. This is primarily because data is easy to find in government statistics. As a consequence, there is a danger of overemphasizing the importance of concentration.
• The SCP approach has been criticized for providing a ‘snapshot’ of competitive conditions. The approach does little to explain how the industry has evolved into its current state and what, if any, the future changes of industry structure and firm behavior are likely to be.
• It is often difficult to decide which variables belong to structure, which to conduct and which to performance. For example, the extent of advertising, vertical integration and diversification gives useful information as to the structure of an industry. However, these are also strategies which firms can choose to follow to gain a competitive advantage over rivals.
• There are difficulties in measuring many of the variables. For example, how would one measure profitability? How does one measure entry barriers and the rate of entry? How do we measure the extent of vertical integration?
• What exactly do we mean by performance? Performance is some measure of the degree of success in achieving desired goals. Is it possible to have a set of uniform performance indicators? Differences in firm objectives may make the links between firm behavior and performance difficult to assess.
For example, if firms are sacrificing potential profits in order to reduce risk by investing in more certain activities, then researchers should be more interested in variability in profit rates and not profits levels
• The SCP approach draws on theories of market structure. These theories can be adapted to examine the behavior of firms and industries. However, these theories do not always give us exact relationships between structure, conduct and performance.
• Structure can be measured by a multitude of indicators. Unfortunately, many economists tend to measure structure by concentration. This is primarily because data is easy to find in government statistics. As a consequence, there is a danger of overemphasizing the importance of concentration.
• The SCP approach has been criticized for providing a ‘snapshot’ of competitive conditions. The approach does little to explain how the industry has evolved into its current state and what, if any, the future changes of industry structure and firm behavior are likely to be.
• It is often difficult to decide which variables belong to structure, which to conduct and which to performance. For example, the extent of advertising, vertical integration and diversification gives useful information as to the structure of an industry. However, these are also strategies which firms can choose to follow to gain a competitive advantage over rivals.
• There are difficulties in measuring many of the variables. For example, how would one measure profitability? How does one measure entry barriers and the rate of entry? How do we measure the extent of vertical integration?
• What exactly do we mean by performance? Performance is some measure of the degree of success in achieving desired goals. Is it possible to have a set of uniform performance indicators? Differences in firm objectives may make the links between firm behavior and performance difficult to assess.
For example, if firms are sacrificing potential profits in order to reduce risk by investing in more certain activities, then researchers should be more interested in variability in profit rates and not profits levels