Ivan Kristek
Josip Juraj Strossmayer University of Osijek
Faculty of Economics in Osijek, Croatia
E-mail: ikristek@efos.hr

Mladen Pancić
Josip Juraj Strossmayer University of Osijek
Faculty of Economics in Osijek, Croatia
E-mail: pancic@efos.hr

Hrvoje Serdarušić
Josip Juraj Strossmayer University of Osijek
Faculty of Economics in Osijek, Croatia
E-mail: hserdar@efos.hr

Abstract

According to SCP paradigm (Structure-Conduct-Performance paradigm) the
industry structure affects the behaviour of firms in the industry, which affects their
performance. The paradigm is consistent with the Neoclassical Theory of the Firm
which assumes that there is a direct link between the industry structure,
entrepreneurial conduct and performance. The basic principle of this paradigm might
be the ability of entrepreneurs to exercise market power in a concentrated industry.
High industry concentration is correlated with high profits, especially if the
concentration level exceeds a certain critical level under the condition that there are
some barriers to entry of new entrepreneurs in the industry. Economic theory supports
the view that the industry concentration is in a positive relationship with efficiency,
and it can be argued that the growth of industry concentration will increase the
efficiency of industry. Current approaches in economic theory and recent empirical
studies do not follow the SCP theory, they suggest that the above-average profits,
which occur in most concentrated industry’s, are results of economic efficiency and
effectiveness, and not a consequence of non-competitive behaviour. In this paper we
will try to give an answer to the above-mentioned issue present in economic theory.
The study will try to demonstrate a statistically significant link between the measure
of concentration and measure of efficiency in retail industry in the Republic of
Croatia.

Key words: SCP, concentration, efficiency, retail industry

Last Update: October 26, 2017