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What to Consider in Structure-Conduct-Performance Model - Essay Example

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This essay "What to Consider in Structure-Conduct-Performance Model" describes all of the aspects that should be considered when deciding policies for the mergers between large firms. The paper gives an essential overview of the Structure-Conduct-Performance Model, the importance of equity and efficiency consideration and what outcomes should be expected in every stage of the process…
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What to Consider in Structure-Conduct-Performance Model
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Download file to see previous pages The best possible outcome for SA is when it plays L while SS plays U and the best possible outcome for SS is when it plays L, and the other plays U. These outcomes (L, U) and (U, L) are difficult to achieve. This is because these strategies are not dominant for both. There is an incentive for one player to deviate.
If the prices are decided every week then the strategy would change in terms of the components. For the repeated games, the Nash equilibriums of all the sub-games are the same as the equilibrium of each one-shot game. The number of components in the strategy would increase because of the repetition of the game (both would still play L, L) however the pay off associated with the game would be increase by times of the number of weeks in the case. For example, if this process is carried out for three weeks, then the payoffs associated with the game for SS and SA would be 3*50000,3*50000= 150000, 150000. 
The rational strategy that they would play would be to not lower the prices. This way none of them would have any incentive to deviate. Plus they would accumulate the maximum possible profit for each of the firms. If they both play L then the profits would be half of what they would earn if they do not change.
The purpose of this essay is to critically analyze the extent to which the efficiency and equity considerations should be taken into account in the Structure-Conduct-Performance Model when it comes to deciding policies for the mergers between large firms. Firstly, the paper talks briefly about the Structure-Conduct-Performance Model and then moves onto discuss the importance of equity and efficiency in policy-making for mergers.
According to the Structure-Conduct-Performance Model, the performance of any industry depends on the firms’ conduct in the industry. The Conduct of the firms, in turn, depends on the structure of the market. The structure of the market may include factors like the overall competitiveness, the number of buyers and sellers. ...Download file to see next pagesRead More
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