Academic journal article Journal of Positive Management

The Role of the Structure-Conduct- Performance Paradigm for the Development of Industrial Organization Economics and Strategic Management

Academic journal article Journal of Positive Management

The Role of the Structure-Conduct- Performance Paradigm for the Development of Industrial Organization Economics and Strategic Management

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

One of the central issues in both strategic management (and previously its precursor- Business Policy), as well as Industrial Organization Economics, is to seek answers to the question about the sources of economic success. And as in the first case one could say that the only responsible entity for the good result is a firm, it is not so obvious in the case of 10 Economics. In the latter case both theorists and researchers think in terms of a much broader context, taking into account the mechanisms leading to success. And at the same time in both scientific branches the final result of success is analogous- to achieve superior economic result, to simplify higher profitability.

It should be noted that the mechanism of seeking answers in the 10 Economics was very strongly fixed in the research from the very beginning stage of this theory. The situation of the early development of strategic management (then identified as Business Policy) is best conveyed by D. Hambrick and M.-J. Chen (2008), who in their study on the methodology for the development of strategic management quote the opinion of D. Guth- one of the main authors of Business Policy: "Business Policy has all the characteristics of a religion. A lot of belief, no empirical knowledge" (Hambrick and Chen, 2008, p 38). This clearly indicates a lack of knowledge and awareness of the paucity of empirical methods in the traditional approach to strategy, leading to the need to adopt a scientific rigor of other scientific disciplines. One of them was the Industrial Organization Economics, which largely supported the development of strategic management, providing methodological foundations, which are the most important ones of the entire subsequent positioning approach (or school) within today's Strategic Management.

10 Organization as a scientific discipline in the first period of its development was based solely on the so called SCP Paradigm (Structure-Conduct- Performance), also known as the Bain/Mason concept (Bain, 1956; Mason, 1939), whose central theme was the relationship between actions and performance of the firms, and the structure of the industry they operate. The subsequent stage of the development of SCP Paradigm was subject to change, which crucially influenced not only the development of Industrial Organization Economics, but also Strategic Management. Its importance is particularly essential in sectors characterized by imperfect competitive conditions, which are in opposition to the classical situation of "perfect competition", well and widely recognized within the field of microeconomics. In fact, the economic conditions in most of the industries are similar to the conditions of imperfect competition, hence the large applicability of SCP Paradigm for many sectors and companies.

In today's Strategic Management literature SCP paradigm does not draw a special attention, particularly in monographs and textbooks in the Polish literature. It is sometimes barely mentioned in some monographs within the field of strategic management usually in a very fragmentary and clearly insufficient way. Hence, the purpose of this paper is to introduce the basic assumptions of the Structure-Conduct-Performance paradigm, its origin and subsequent significant changes, methods of empirical confirmation of its existence and its importance for the development of Industrial Organization Economics and Strategic Management.

2. Structure-Conduct-Performance Paradigm - the historical development of the idea

The logic of the SCP paradigm is presented in Figure 1, its basic premise is the belief that the performance of the companies within every industry is affected by their conduct (generally understood as management), which in turn are conditioned to a large extent by the structure of the sector in which companies operate. That basic premise of the paradigm led, according to M. Porter (1981), to the conclusion that in reality the level of firm profitability in the industry is mainly influenced by the nature of industrial factors shaping its structure. …

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