In the Market Structure- Conduct- Performance Paradigm, What Are the Issues Discussed Under Market Structure? Is the Paradigm Useful?

Essay Question:

In the market structure- conduct- performance paradigm, what are the issues discussed under market structure? Is the paradigm useful?

The main issues in the market structure paradigm and the usefulness of the SCP paradigm

As for the concept of structure- conduct- performance paradigm, it is composed of market structure, market conduct and market performance. In the section of market structure, it has the following eight parts: ⅰnumber and power of sellers ⅱ number and power of buyers ⅲ nature of product ⅳ barriers to entry ⅴbarriers to exit ⅵvertical integration ⅶ cross-subsidisation, diversification ⅷ international basis. In this article, the trading parties, nature of product, barriers to entry and the diversification would be mainly discussed. At the end of this essay, the usefulness of the SCP paradigm will be listed.

1. Quantity and Scale Distribution of Trading Parties

There are many buyers and sellers in the perfect competitive market. When enterprise scale is too small to independently exert influence on prices in the market, they have to become receivers of market prices. Under general conditions, with the decrease of quantity of trading parties, each party’s scale will be enlarged accordingly, the potential of price fluctuation becomes increasingly stronger, and the possibility of generating monopoly becomes higher. Sellers’ monopoly will take place to a certain degree (buyers’ monopoly).

2. Product Differentiation

In the ideal perfect competition situation, homogeneous products are sold by enterprises and they can compete with each other in prices. In the ideal world, differentiation exists in some aspects among products. With the enhancement of product differentiation degree, the substitutability of products among different enterprises becomes weak, and the possibility for enterprises to acquire the monopoly position becomes higher accordingly. However, certain substitutability exists between the satisfaction for...