Foundations of the Structure-Conduct-Performance Paradigm in Banking

This paper employs an explicit model of the banking firm to derive formally, and thereby assess critically, the most commonly tested relationships implied by the structure-conduct-performance paradigm as it applies to the banking industry. These include the relationship between loan rates and market concentration, deposit rates and market concentration, and bank profitability and market concentration. The necessary assumptions and simplifications implicit in past empirical studies are outlined and suggestions for future empirical implementation of the underlying model are presented.