8.1.3 Relationships between structure, conduct and performance
Economists tend to relate conduct and performance in different markets to
market structure. In this context, conduct refers to strategic behaviour, in
particular in terms of price and output determination, but also in terms of
advertising, product differentiation and practices regarding entry and exit
barriers. This chapter focuses mainly on the aspects of price and output
determination, while Chapters 9 and 11 examine other aspects of strategic
behavior. Performance refers to aspects of profit and efficiency. Traditionally
the relationships between structure, conduct and performance have been
viewed in terms of a one-way causation sequence: structure determines conduct
which in turn determines performance. Structure itself has been seen as
largely determined by technical factors, mainly the type of technology, but
with government policy, infrastructure and geographical factors all being
relevant. Currently the relationships between the different aspects are seen
as being more complex, with various feedback mechanisms between them.These will be seen as the chapter progresses and each type of market structure
is examined in detail. The involvement of the government in terms of these
relationships is examined in Chapter 12.