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Point 2

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Submitted By wutingting
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Performance refers to the profits and social welfare that result in a given industry
It is important for future managers to recognize that profits and social welfare change significantly across industries.
Social Welfare
Another gauge of industry performance is the amount of consumer and producer surplus generated in a market.
Social Welfare = CS + PS
Dansby-Willig Performance Index
Ranks industries according to how much social welfare would improve if the output in an industry were increased by a small amount.
Industries with large index values have poorer performance than industries with lower values.。。。。
The Structure-Conduct-Performance Paradigm
You now have a broad overview of the structure, conduct, and performance of U.S industry. The structure–conduct–performance paradigm views these three aspects of industry as being integrally related.
The structure of an industry refers to factors such as technology, concentration, and market conditions. Conduct refers to how individual firms behave in the market; it involves pricing decisions, advertising decisions, and decisions to invest in research and development, among other factors. Performance refers to the resulting profits and social welfare that arise in the market.

The causal view of industry asserts that market structure “causes” firms to behave in a certain way. In turn, conduct, “causes” resources to be allocated in certain ways, leading to either “good” or “poor” market performance.
Concentration causes high prices and poor performance.

The Feedback Critique
No one-way causal link among structure, conduct, and performance.
Conduct can affect market structure.
Market performance can affect conduct as well as market structure.
In summary, then, it is a simplification of reality to assert that concentrated markets cause high prices. Indeed, the pricing behavior of firms can affect the number of firms. As we will see in subsequent chapters, low prices and good performance can occur even if only one or two firms are operating in an industry.
Relation to the Five-Forces Framework.
Five forces framework suggests that five interrelated “forces” affect the level, growth, and sustainability of industry profits: (1) entry, (2) power of input suppliers, (3) power of buyers, (4) industry rivalry,
(5) substitutes and complements.

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