The Organisation of Firms

Abstract

With the specific aim of gaining an insight into the characteristics that distinguish the construction industry from other productive sectors of the economy, this chapter identifies some of the factors that determine how firms behave within markets. Much of the analysis falls under the general heading of ‘industrial economics’. Not surprisingly this branch of economics continues to be a vibrant focus of research, and not surprisingly for economists(!) it can result in considerable disagreement. At one extreme is the view that firms that are able to exploit favourable market conditions will do so to the detriment of the consumer, necessitating piecemeal government intervention. This view is embodied in what economists refer to as the structure-conduct-performance (SCP) approach. Although this framework is now seen by some economists as somewhat limited, since it tends to imply a simple causal relationship between the structure of an industry and the way in which firms respond to it, the approach continues to provide the blueprint for investigations by the British Monopolies and Mergers Commission.