According to the Structure-Conduct-Performance (SCP) paradigm, which of the following best describes the causal relationship?

Question

According to the Structure-Conduct-Performance (SCP) paradigm, which of the following best describes the causal relationship?

BlackTom AI · Accepted Answer

To start, let's lay out the core idea of the Structure–Conduct–Performance (SCP) framework: industry structure influences firm conduct (strategies, pricing, investment), which in turn affects industry performance (profits, efficiency, growth).
Option 1: 'Industry conditions determine firm strategies, which then influence the level of profits.' This aligns with SCP: external structure (industry conditions) shapes how firms behave, and these behaviors then drive performance outcomes like profits. It correctly captures the causal sequence.
Option 2: 'Firm success shapes behavior, which then alters industry structure.' This reverses the standard causality. In SCP, structure is assumed to influence conduct, not the other way around; while successful firms may affect competition in some markets, the canonical model treats structure as exogenous to conduct.
Option 3: 'Industry results dictate profit opportunities, which then affect firms' strategy' flips the order and implies profits determine opportunities that guide strategy. In SCP, opportunities and profits emerge from the structure and competitive environment, but the typical chain emphasizes structure shaping conduct first, not profits defining opportunities that retroactively shape strategy.
Option 4: 'Firm decisions reshape the industry, leading to economic outcomes.' This also reverses the causal direction. The SCP framework posits that industry structure shapes firm conduct, which then leads to performance outcomes; individual firm decisions do not normally reshape industry structure as the primary causal step.
In short, option 1 correctly reflects the SCP causal chain, while options 2, 3, and 4 misstate the direction of causality between structure, conduct, and performance.

According to the Structure-Conduct-Performance (SCP) paradigm, which of the following best describes the causal relationship?

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