Abstract
The relationship between industry structure and performance has maintained a central role in UK, US and EC competition legislation. The potential for improved efficiency and the perceived threat to consumer interests are not necessarily irreconcilable. The structure—conduct—performance (SCP) paradigm predicts that the structure of the market in which a firm operates will determine its performance. One of the central propositions of this structuralist hypothesis is that findings of a positive relationship between seller concentration and average industry profitability is evidence of the exercise of market power. Competition policies based on this hypothesis are designed to prevent substantial increments to that power via horizontal mergers. The SCP paradigm is not, however, without its critics. An alternative view proposed by Demsetz results in a diametrically opposite recommendation for merger policy. Demsetz suggests that the concentration-profitability relationship, rather than highlighting the existenc...
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