Positive Relationship between Structure and Performance

2016 WordsFeb 19, 20188 Pages
The positive relationship between structure and performance reported in the SCP literature has been challenged with the efficiency hypothesis, as both structure and performance are determined by efficiency. Initially, the empirical literature aim to investigate the relationship between SCP and efficiency through the following regression. As we mentioned in the previous section, the SCP implies that α_1>0. However, both efficiency hypothesis implies that α_2>0. Most empirical result supports both efficiency hypotheses since α_2 is positive and statistically significant but α_1 is just around zero and insignificant, that is, larger market shares go together with high profitability. Berger (1995) takes one further than the standard efficiency approach. In order to further differentiate between the SCP and efficiency hypothesis, he direct include measures of both X-efficiency and scale efficiency as additional variable in the vector. He derives both efficiency measures from the estimation of a trans-log cost function. By assuming X-efficiency will persist over time, the X-efficiency is separated from random noise. The X-efficiency equals the ratio of predicted costs for the most efficient cost in the sample to bank’s predicted costs for the given vectors of outputs and inputs. In addition, He also computes scale efficiencies based on the trans-log cost function by taking the ratio of minimum predicted costs to average predicted average cost for any individual bank. By estimates
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