Empirical Evidences on Structure-Conduct-Performance Relationship in Banking Sector: A Literature Review

Abstract

A detailed review of existing literature on the structure-conduct-performance (SCP) relationship indicates that the empirical divergence between SCP and competing hypothesis is still not conclusive which is attracting many research works across the world, and recently in Africa. Studies on SCP are dominated by quantitative analysis with exclusion of non-quantifiable variables such as related to conduct and/or those lack data (regulation). The majority of studies employ a multiple linear regression model where a measure of bank performance (mostly profit) is regressed on market concentration variables (such as k-firm, Herfindahl-Hirschman Index, etc.) along with some control variables. Studies that used the structure model have limited focus on other key variables like regulation, macroeconomic, and industry factors. They have also applied a quantitative approach and assumed conduct as being a derivative of the market structure. Hence, there was no attempt to explore the behavior of banks within the given structure, banking, and macro environment. Few studies have explicitly considered Ethiopia’s banking performance using the structural approach (SCP or ESH). Nevertheless, the existing bank performance studies were not analyzed incorporating big banks in the industry, with long period observation of banks, using parametric and non-parametric methods, which are scarce in the Ethiopian context.

Testing of the Structure-Conduct-Performance Hypothesis for Industrial Banking Profitability: Evidence from Indonesia

“…The structure, conduct, and performance (SCP) analysis approach was originally developed by Mason in 1939, and the SCP approach was used in industrial organizations by Bain in 1951, to determine the relationship between concentration and profitability (Lelissa & Kuhil, 2018;Asngari et al, 2018). Bain (1951) argued that there is collusion that causes a positive relationship between concentration and profitability, and a negative relationship between concentration and competitive market performance (Asngari et al.…”

Structure and performance of cassava markets: challenges of food security and connecting small farmers to markets in Cameroon

“…Information is highly asymmetric, and transaction cost is disproportionately distributed (Fackler and Goodwin, 2001;Barrett and Li, 2002). These conditions have contributed to diverse behavioral patterns between operators in agrifood markets (Lelissa and Kuhil, 2018). The outcome of these market behaviors drives changes in market prices in ways that are not captured within price-centered (transmission-based) models (Fackler and Goodwin, 2001).…”

Contribution of Evangelical Lutheran Church-Northen Diocese on the performance of community banks in Tanzania: A case of Uchumi Commercial Banks

“…SCP hypothesis can be described as the relationship between market structure, firm conduct and firm performance. The structure of an industry may include technology, concentration and market conditions (Khan et al, 2018;Jaouad and Lahsen, 2018) while Structure and Conduct (SC) refers to factors such as the pricing decisions, advertising decisions and research and development (R&D) decisions made by the firms in the market; and performance is the profits and social welfare generated according to Lelissa and Kuhil (2018). Furthermore, according to Berger (1995) as cited by Berger et al, (2022), barriers to entry into an industry influence a firm's profitability in that higher costs of entry help existing firms to maintain monopoly profits, as new entrants would shrink the profits.…”