What is Bain-type Industrial Organization (IO)?
A theory which explains how firms maximize profits by increasing market power through practices like collusion, merges and entry barriers
What is the Structure-conduct-performance (SCP) approach?
An Industrial Organization framework assuming a casual relationship between:
industry structure (e.g. number of firms / entry barriers)
Firm conduct (e.g. pricing)
Market performance (e.g. profitability)
What are the key components of market structure in the SCP model
number and size distribution of buyers and sellers
Entry and exit conditions
Product differentiation
Vertical integration and diversification
What measures are included in market performance under SCP
Profitability
Growth
Product quality
Productive and allocative effiency
What is the role of entry barriers in Bain-type IO?
Entry barriers prevent new competitors, allowing existing firms to maintain higher prices and profits long-term
What is the market concentration (con) in the SCP model?
A measure of how many firms dominate an industry, directly impacting competition and profitability (pi)
Formula: structure-conduct-performance approach
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