Scp Paradigm

SKILL.md

---
name: scp-paradigm
description: >
  Use when analyzing how industry structure drives firm behavior and market performance,
  assessing market concentration, entry barriers, or competitive dynamics using the
  Structure-Conduct-Performance framework. Triggers on "SCP", "structure conduct
  performance", "industry structure analysis", "market concentration", "entry barriers",
  "competitive behavior", "antitrust analysis", "SCP范式", "结构-行为-绩效",
  "行业结构分析", "市场集中度", "进入壁垒".
---

# SCP Paradigm (Structure-Conduct-Performance)

Analyze how market **Structure** determines firm **Conduct**, which in turn determines
market **Performance**. Originated by Edward S. Mason (Harvard, 1930s) and formalized
by Joe S. Bain (UC Berkeley, 1950s) as the foundational framework of Industrial
Organization economics.

## Purpose

- Understand causal links from industry structure to economic outcomes
- Predict firm behavior based on structural characteristics
- Assess whether an industry's performance is efficient or requires intervention
- Support antitrust, regulation, and competition policy analysis

## When to Use

- Analyzing competitive dynamics in a specific industry
- Evaluating market entry feasibility based on structural barriers
- Assessing whether industry concentration leads to anti-competitive behavior
- Comparing industries with different structural characteristics
- Informing policy or regulatory analysis

## When NOT to Use

- For internal firm-level activity analysis (use Value Chain Analysis)
- For macro-environmental scanning (use PESTEL)
- For technology adoption timing (use Gartner Hype Cycle)
- When the industry is too nascent to have stable structure

## Framework

### S → C → P Causal Chain

```
┌─────────────┐      ┌─────────────┐      ┌─────────────┐
│  Structure   │ ───▶ │   Conduct   │ ───▶ │ Performance │
│              │      │             │      │             │
│ Market       │      │ Firm        │      │ Market      │
│ conditions   │      │ behavior    │      │ outcomes    │
└─────────────┘      └─────────────┘      └─────────────┘
       ▲                                         │
       └─────────── Feedback loops ──────────────┘
```

Note: The original Mason-Bain model is unidirectional (S→C→P). Later scholars
(Chicago School) recognized that conduct can reshape structure, and performance
can trigger regulatory changes that alter structure.

### 1. Structure — Market Conditions

Analyze the structural characteristics that constrain firm behavior:

| Factor | Description | Key Indicators |
|--------|-------------|----------------|
| **Seller concentration** | Number and size distribution of firms | CR4, CR8, HHI (Herfindahl-Hirschman Index) |
| **Buyer concentration** | Number and bargaining power of buyers | Buyer CR4, switching costs |
| **Entry barriers** | Obstacles to new firm entry | Capital requirements, patents, scale economies, regulatory licenses |
| **Exit barriers** | Obstacles to leaving the market | Sunk costs, asset specificity, contractual obligations |
| **Product differentiation** | Degree of substitutability | Brand loyalty, perceived quality gaps, switching costs |
| **Vertical integration** | Extent of upstream/downstream control | % of value chain controlled internally |
| **Cost structure** | Fixed vs. variable cost ratio | Operating leverage, minimum efficient scale |

### 2. Conduct — Firm Behavior

Analyze how firms behave given the structural constraints:

| Factor | Description | Key Indicators |
|--------|-------------|----------------|
| **Pricing behavior** | How prices are set | Price leadership, collusion, predatory pricing, price wars |
| **Advertising & marketing** | Promotional intensity | Ad-to-revenue ratio, brand investment |
| **R&D and innovation** | Investment in new products/processes | R&D-to-revenue ratio, patent filings |
| **Capacity decisions** | Investment in production capacity | Capacity utilization, strategic excess capacity |
| **Collusion & cooperation** | Coordination among competitors | Tacit collusion, trade associations, joint ventures |
| **Mergers & acquisitions** | Consolidation activity | M&A volume, horizontal vs. vertical deals |
| **Legal tactics** | Use of IP, litigation, regulatory capture | Patent trolling, lobbying spend |

### 3. Performance — Market Outcomes

Assess the resulting economic outcomes:

| Factor | Description | Key Indicators |
|--------|-------------|----------------|
| **Profitability** | Returns above competitive level | ROE, ROA, economic profit, Lerner Index |
| **Allocative efficiency** | Price vs. marginal cost | Price-cost margins, deadweight loss estimates |
| **Productive efficiency** | Cost minimization | Unit costs vs. industry best practice |
| **Dynamic efficiency** | Innovation and progress | New product introduction rate, productivity growth |
| **Equity** | Distribution of surplus | Consumer vs. producer surplus, wealth concentration |

## Application Process

### Step 1: Define the Market

```markdown
- **Industry/Market:** [Specific market definition]
- **Geographic Scope:** [e.g., "China domestic cloud infrastructure market"]
- **Time Period:** [e.g., "2023-2025"]
- **Purpose:** [e.g., "Assess whether market entry is viable"]
```

Market definition matters — too broad dilutes analysis, too narrow misses substitutes.

### Step 2: Analyze Structure

For each structural factor:
1. Collect data or make informed estimates
2. Assess whether the factor favors incumbents or entrants
3. Rate overall structural intensity (fragmented ↔ concentrated)

### Step 3: Predict/Observe Conduct

Based on structure, predict or observe:
- How do firms price? (competitive, oligopolistic, monopolistic)
- How do firms compete? (price, quality, innovation, brand)
- Is there evidence of coordination or anti-competitive behavior?

### Step 4: Evaluate Performance

Assess whether outcomes are:
- **Efficient** — prices near cost, innovation healthy, consumer choice adequate
- **Inefficient** — supranormal profits, underinvestment, limited consumer options

### Step 5: Identify Feedback Loops

Does conduct reshape structure?
- Aggressive M&A → higher concentration
- Innovation → new entry barriers (or destruction of old ones)
- Lobbying → regulatory barriers

### Step 6: Strategic Implications

```markdown
## SCP Analysis Summary

### Structure Assessment
- Concentration: [High/Medium/Low] — [evidence]
- Entry barriers: [High/Medium/Low] — [key barriers]
- Product differentiation: [High/Medium/Low] — [basis]

### Conduct Patterns
- Dominant competitive mode: [price / quality / innovation / brand]
- Coordination risk: [High/Medium/Low] — [evidence]

### Performance Assessment
- Profitability: [Above/At/Below] competitive returns — [evidence]
- Innovation: [Strong/Moderate/Weak] — [evidence]
- Consumer welfare: [Favorable/Neutral/Unfavorable]

### Strategic Recommendations
1. [Recommendation based on structural opportunities]
2. [Recommendation based on conduct patterns]
3. [Recommendation based on performance gaps]
```

## Common Pitfalls

| Pitfall | Fix |
|---------|-----|
| Assuming strict one-way causation (S→C→P only) | Acknowledge feedback loops — conduct can reshape structure |
| Using SCP for firm-level strategy without industry data | SCP is an industry-level framework; pair with firm-level tools like Value Chain |
| Ignoring market definition sensitivity | Test conclusions under alternative market definitions |
| Confusing correlation with causation | High concentration + high profits ≠ proof of anti-competitive conduct |
| Static snapshot when dynamics matter | Track how structure evolves over time, especially in tech-driven markets |

## References

### Seminal Works

- Mason, E.S. (1939). "Price and Production Policies of Large-Scale Enterprise."
  *American Economic Review*, 29(1), 61-74.
- Bain, J.S. (1956). *Barriers to New Competition*. Harvard University Press.
- Bain, J.S. (1959). *Industrial Organization: A Treatise*. John Wiley & Sons.

### Authoritative References

- Wikipedia — Structure-Conduct-Performance paradigm: https://en.wikipedia.org/wiki/Structure%E2%80%93conduct%E2%80%93performance_paradigm
- Wikipedia — Joe Bain: https://en.wikipedia.org/wiki/Joe_Bain
- Bianchi (2013). "Bain and the origins of industrial economics." HAL Open Science: https://hal.science/hal-03470154v1/document

### Related Frameworks

- **Porter's Five Forces** — Derived from SCP; operationalizes structural analysis for strategy
- **Value Chain Analysis** — Complements SCP with firm-level activity decomposition
- **PESTEL** — Macro factors that shape industry structure