This chapter considers conduct and performance factors – the ways in which organisations
behave and their performance. The original Structure–Conduct–Performance
(S-C-P) model (see Chapter 7) portrayed market/industry structure as determined by
factors such as minimum efficient scale, demand and cost conditions, all of which were
beyond the control of the firm. Structure then was seen to influence the conduct of the
organisation and in turn to determine the performance of these enterprises. In this
model, the firm is seen as passive – it attempts to achieve its objectives subject to certain
constraints: for example, maximising profits subject to existing cost and demand conditions
or maximising sales subject to earning a satisfactory level of profits. This is a very
crude view of the operation of firms; in reality, businesses are active rather than passive,
they can and do make decisions which will change the constraints under which they
operate. Later versions of the S-C-P model accepted that market structure is not exogenously
determined but could be affected by strategic behaviour on the part of firms. Even
in neo-classical economic theory it is only in perfect competition that the firm is completely
powerless in the face of market forces. In all other market structures, the firm can
make choices which will impact upon the structure of the market in which it operates.