This chapter has considered important conduct and performance factors. The way in
which firms behave is affected by many factors including the market structure in which
they operate, the objectives of firms and general macroeconomic conditions. A distinction
is made between passive behaviour and strategic behaviour. Strategically, firms
could be trying to deter entry through the erection of barriers to entry like advertising
and product differentiation; they could be attempting to influence existing market conditions
through pricing policy or through mergers and takeovers; or they could be
attempting to reduce the level of uncertainty they face through cooperation with other
firms. All of these conduct factors and more have been considered in this chapter. In the
basic Structure–Conduct–Performance model, conduct is a result of market structure
which then goes on to determine performance. A more sophisticated model allows
reverse linkages and this is the view that has been adopted above. The effects that conduct
has on performance and structure were also discussed.