The Structure-Conduct-Performance (SCP) paradigm is considered to be an important tool of contemporary industrial economics. It states that market performance depends on various elements of market structure, such as entry conditions, market concentration, and number and size of firms, as well as different forms of firm conduct and strategic behavior, such as capacity utilization, advertising and collusion. This study elucidates the basic ideas of SCP theory and reviews important studies pertaining to both developed and developing economies that are based on the SCP paradigm, while exploring the relevance of the SCP paradigm to the Indian industry. The relationship between market concentration and market performance in the Indian industry is discussed in depth, as is the association between entry barriers in the Indian industry and market performance. The link between market performance and competitiveness of Indian firms is also explored. The study underscores the increasing significance of the SCP paradigm in the post-reform Indian industry.

The contemporary, mainstream literature on industrial organization posits a negative relationship between industrial or market performance and market concentration. The Structure-Conduct-Performance (SCP) paradigm or theory, which is an important tool of contemporary industrial economics, attempts to explain the above hypothesis that relates market performance to market concentration. The SCP paradigm has arisen from European industrial economics, which has argued that in several markets, firms are able to exert market or monopoly power (Martin, 1993). Industrial economists of the European tradition further believed that strategic conduct of some firms in a market can be a major hindrance for the efficient functioning of the market, as it may preclude other efficient firms from competing in the market. Strategic behavior also allows firms to exercise monopoly power in a market by controlling the price of their product.

According to SCP theory, market performance depends on various aspects of market structure, such as entry conditions, market concentration, number and size of firms, as well as different forms of firm conduct and strategic behavior such as capacity utilization, advertising and collusion. For instance, in a concentrated market, large firms can collude and act as a monopoly by increasing the price of their product and decreasing their level of output, thereby earning high economic profits. Therefore, market performance tends to be very unsatisfactory in highly concentrated markets. Similarly, existing firms in a market can restrict the entry of new firms in the industry by effective advertisement and by developing large production capacity, which leads to more concentrated markets and high profits for large firms. Hence, firm conduct affects market structure and performance. In addition, market performance can also affect market structure and conduct of firms in the industry.