A Key Driver of Growth and International Competitiveness?
Chapter 7: Industry conduct and performance
Industry conduct and performance are part of the structure–conduct–performance model which is often used by economists as a starting point in analysing an industry. In the basic model, industry performance is explained by industry structure with causation running from structure to performance. Reality, however, is more complex with industry performance and conduct often determining industry structure. Other economic models are also used to analyse an industry (e.g. game theory; contestable markets; transaction costs; Austrian economics: see Chapter 6). A non-technical description of the main features of game theory is presented showing its relevance to understanding the behaviour of major aerospace firms with examples from civil and military markets. Conduct and performance are important in analysing aerospace industries. Conduct describes the form of competition between firms in the aerospace industry and the results of competition are reflected in industry performance. Analysis of performance also raises the more general question of how aerospace industry performance is measured and how it compares with the performance of aerospace industries in other countries and with industries in the rest of the economy. This chapter presents an analysis of the aerospace industry’s conduct and performance, making a distinction between military and civil markets. Industry structure determines the number and size distribution of firms in an industry and the conditions of entry into, and exit from, the industry (e.g. whether there is free entry and exit or barriers to entry and exit).
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