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Structure, conduct and performance: a simultaneous equations approach

  • Charles DeLorme
  • Peter Klein
  • David Kamerschen
  • Lisa Ford Voeks

A simultaneous-equations framework is used to study the relationship between structure, conduct, and performance in US manufacturing in the 1980s and 1990s. The paper expands on earlier structure-conduct-performance studies by using a lag structure to signify that structure, conduct and performance do not affect one another contemporaneously. Findings support some aspects of the traditional structure-conduct-performance model, but challenge others. First, the data suggest that industry structure does not depend on current industry performance. Second, little evidence is found that industry conduct, proxied by advertising, is affected by industry structure. Third, results show that industry performance does not depend on industry conduct, though it is sensitive to industry structure. Thus, the main findings are that (1) concentration does not depend on firm profitability, though profitability depends on concentration, (2) advertising follows a process that is independent of the factors considered here, and (3) advertising seems to have no effect on profitability.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 1 ()
Pages: 13-20

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Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:13-20
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  1. Blonigen, Bruce A & Taylor, Christopher T, 2000. "R&D Intensity and Acquisitions in High-Technology Industries: Evidence from the US Electronic and Electrical Equipment Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 47-70, March.
  2. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
  3. Demsetz, Harold, 1979. "Accounting for Advertising as a Barrier to Entry," The Journal of Business, University of Chicago Press, vol. 52(3), pages 345-60, July.
  4. Bronwyn H. Hall, 1988. "The Effect of Takeover Activity on Corporate Research and Development," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 69-100 National Bureau of Economic Research, Inc.
  5. Porter, Michael E, 1979. "The Structure within Industries and Companies' Performance," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 214-27, May.
  6. Nagle, Thomas T, 1981. "Do Advertising-Profitability Studies Really Show That Advertising Creates a Barrier to Entry?," Journal of Law and Economics, University of Chicago Press, vol. 24(2), pages 333-49, October.
  7. Imel, Blake & Helmberger, Peter, 1971. "Estimation of Structure-Profit Relationships with Application to the Food Processing Sector," American Economic Review, American Economic Association, vol. 61(4), pages 614-27, September.
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