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46 Antitrust L.J. 864 (1977)
Structure-Performance Relationships and Antitrust Policy

handle is hein.journals/antil46 and id is 922 raw text is: STRUCTURE-PERFORMANCE RELATIONSHIPS AND ANTITRUST POLICY By FREDERiC M. SCHERER Professor of Economics Northwestern University Books could be, and have been written on the topic I have been assigned to cover. I shall resist the overpowering temptation to drop carefully selected footnote references and get on as best I can with an overview of the problem. The Structure-Conduct-Performance Paradigm Since the 1930s economists have with increasing frequency used a simple paradigm to analyze the functioning of markets. What it says in brief is that the structure of the market significantly affects the conduct of buyers and especially sellers in such activities as price-setting and product policy, and that their conduct in turn determines the ultimate economic perfor- mance-good, bad, or indifferent-of the market. At first this structure-conduct- performance (SCP) paradigm was not much more than a hatrack upon which one could hang facts in organizing a full-scale industry study. Later it became linked to diverse theoretical models of how markets function, and many of these models were quite complex. But still more importantly, because economics is a field of inquiry that deals, at least ideally, with observable and measurable quantities, the SCP paradigm served as both impetus and foundation for statistical studies relating conduct or perfor- mance variables to strdicture-the latter typically measured in terms of such indices as the four-firm seller concentration ratio, the market shares of indi- vidual leading firms, and the fraction of industry output contributed by a plant deemed large enough to realize all appreciable production scale economies. Statistical analysis is peculiarly well suited for testing the SCP paradigm, for statistics deals in tendencies, not certainties. The most frequently articu- lated (but not the only) prediction of the paradigm is that high seller concen- tration leads in various ways to a greater elevation of prices above unit costs and hence to higher profit returns. I know of no economist who holds that this relationship is applicable for every industry at every moment in time. Rather, it is believed to be a statistical tendency-prevailing on the average over a large sample of cases, like (but perhaps stronger than) the tendency for lung cancer to be contracted more frequently by heavy smokers.

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