Structure-Conduct-Performance approach in the pharmaceutical industry is not relevant due to negligible concentration and low barrier to entry. This paper addresses the efficiency approach to find out what are the factors that influence efficiency of firms in the pharmaceutical industry. Data of all the companies available in prowess database is taken for empirical analysis. Two multivariate techniques namely—factor analysis and multiple regressions—were applied for such analysis. The unique finding of the analysis was that there is no significant impact of research and development and advertising expenses in the efficiency of the firm. As the research and development expenses in the pharmaceutical industry claims a considerable share of annual revenue of the firm, it is time for the firms to have a re-look on the return on investment in research or make it more selective than general.

Researchers of strategic management focus on industry structure, particularly entry and mobility barriers which often deflect interest from more central issues in strategic management research, such as measuring performance, recognizing and exploiting core competencies (Prahalad). For the pharmaceutical industry, the focus on industry structure rather than competitive process and efficiency may result in sub-optimal investments which divert resources from strategies designed to develop unique firm resources to strategies designed to identify or create optimal industry structure. Structure-Conduct-Performance (SCP) paradigm occurs when the economic performance of an industry is defined by the conduct of buyers and sellers, which in turn, is a function of the industry’s structure (Mason). Economic performance is measured in terms of welfare maximization. Conduct refers to activities of buyers and sellers in the industry and the level of entry barrier.

Caves and Porter extended the theory of entry barriers to include mobility barriers. Mobility barriers represent the same conceptual features as entry barriers where it deals with the existing firms rather than those firms who want to enter in the industry. Once the structure becomes successful, it increases the ability of that particular firm which consequently results into barriers to entry and increased concentration. This kind of model is only relevant when there is high concentration in the industry as same act as entry barrier to other prospective firms who want to enter into the market. However, concentration ratio in Indian pharmaceutical industry is very low.