tions can sustain the economic logic of
the framework. As a salient example,
Applying the Structure-Conduct-Performance
Framework in the Media Industry Analysis
by Wayne Fu, Nanyang Technological University, Singapore
The Structure-Conduct-Performance (S-
C-P) paradigm has become a common
approach to analyzing communica-
tions industries and markets. This
framework, drawn from the well-estab-
lished Industrial Organization (IO) eco-
nomics, examines the operation of a
market by discerning the three ele-
ments of the market – structure, con-
duct, and performance – and evaluat-
ing their interrelations. This IO
perspective is well received among
both media economics researchers and
communication scholars who investi-
gate the generic but overarching ques-
tion of how the media operate in a free
marketplace to serve the public. This
paradigm presents a logical, systematic
guideline for formulating theoretical
models and crafting empirical exami-
nations of the operation of a media
market. Its merit also lies in normative
implications it generates that can ben-
efit the making of policies and regula-
tions on media industries. A number of
articles have illuminated the S-C-P
paradigm as well as commenting on its
media applications. These include
Albarran (1996, 1998); Busterna (1988a,
1988b); Gomery (1989, 1993); McQuail
(1992); Owers, Carveth and Alexander
(1993); Ramstad (1997); Wirth and
Bloch (1995); and Young (2000).
www.mediajournal.org
Despite the recognition and adoption
of the paradigm, the current state of S-
C-P applications in media analysis begs
for greater scrutiny. As described later,
certain misconceptions and misinter-
pretations have recurred in this line of
research which have led to arguments
© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV : (275 – 284) 275
performance in the S-C-P is often con-
strued as the achieving of particular
social or political objectives such as lo-
calism, free speech, diversity of ideas,
fairness, equity, and so on. Interpreta-
tions of this kind either implicitly as-
sume or explicitly state that the so-
cially defined performance of a media
market would, prima facie, bear – just
as the economic performance does – a
systematic relationship with the struc-
and propositions that clash with the ture of and conduct in the market.
original meaning of IO economics. In- However, whether these media perfor-
complete and even errant concepts of mance criteria can be served through
the framework’s constructs have dis- a market condition – i.e. competition
torted what the model can properly versus monopoly – is still an open ques-
demonstrate. This conceptual inconsis- tion. Views that market operation can
tency is related to the fact that the S-C- promote social objectives are plagued
P framework has been applied with too by ignorance about the viability of the
little rigor but much freedom and im- presumed causal link between market
precision by media scholars. Further, structure and these prescribed perfor-
what an S-C-P analysis usually reveals mances.
is largely determined by the particular
angle the framework is conveniently With an eye toward bridging the gap
approached from. It is not rare for an between what the framework truly
S-C-P media analysis to begin with a means and how it is actually applied,
nebulous, subjective view of the theory this article identifies sources of the ap-
and conclude with circumstantial or plication inconsistencies, and discusses
stylized interpretations. Such media their research and policy implications.
studies have not been concerned about Next, it addresses how those thorny
whether their own S-C-P interpreta- media themes, i.e. content diversity and
Abstract
This article reviews the application of the Industrial Organization (IO) framework of
Structure-Conduct-Performance (S-C-P) in media market research. The constructs and
premises of this economic model are restated, and the orthodox economic notions of
market performance and the logic that underlies the model are clarified. Alongside
these elucidations, this article discusses common conceptualizations and interpreta-
tions found in media market studies. Media issues such as content diversity and me-
dia concentration, which are often studied through the S-C-P approach, are also re-
examined. These deliberations are intended to contribute toward a more consistent
framework for the study of media industries and markets.
Wayne Fu
(twjfu@ntu.edu.sg)
is an Assistant Professor in the School of Communication and Information at Nanyang
Technological University, Singapore. He holds a Ph.D. from Northwestern University.
His research focuses on the economics of media and telecommunications industries.
market concentration, can be better
studied through the S-C-P framework.
By calling for a more accurate and co-
herent use of the S-C-P approach, this
article hopes to provide some insight
in channeling related media market re-
search in more robust and productive
directions.
The rest of the paper is organized as
follows. Section 2 expounds the micro-
economic notion of market ‘perfor-
mance’ and, based on this notion, ex-
plicates the rationale for its relation to
market structure and firms’ behavior.
Section 3 reassesses against the eco-
nomic reasoning those ‘social-value’
views proposed about media market
performance. Section 4 elaborates on
the connection between media diver-
sity and market competition, a
longstanding issue in media studies. In
Section 5, the paper explains the im-
portance of explicitly accounting for
the fundamental economic character-
istics of the communications industry
and products in S-C-P analysis. Section
6 provides the conclusion.
The Economic Notion
and the Measurement
of Market Performance
The term ‘performance’ as used by IO
economists generally refers to the de-
gree to which the operation of a mar-
ket can achieve economic efficiency. A
market is more efficiently operated
when the goods transacted in it are
manufactured by transforming re-
sources more thriftily and are then al-
located to users who have higher valu-
ations. Herein, performance, first and
foremost, refers to a ‘market’ as a
whole, which comprises all the inter-
acting buyers and sellers, instead to in-
dividual economic agents such as
firms.1 In a seminal book on IO eco-
nomics frequently cited by media mar-
ket researchers, Scherer and Ross
(1990, p. 4) made this clear: ‘perfor-
mance in particular industries or mar-
kets is said to depend upon the conduct
of sellers and buyers.’ Any IO perfor-
276 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV
mance study should not be concerned
about a specific firm’s gain or loss as a
performance goal because the welfare
of the economy but not that of a cer-
tain company is at issue.
The model of competition is instructive
when illustrating how efficiency is at-
tained. Of course, pure competition
rarely exists in media markets. How-
ever, an explicit understanding of the
process of competition, as an efficiency
yardstick, is necessary to judge the per-
formance of any other type of market
(McConnell & Brue 2003).
Competition coerces sellers to offer an
ever-lower price in order to attract
sales. As such, sellers cannot unilater-
ally raise their prices without losing
business. Any drop in the market price
will mean that more people can afford
the good. In theory, perfect competi-
tion will keep the price so low that all
individuals who are willing to pay at
least the marginal cost will consume,
but not anyone else. Provided this,
allocative efficiency is maximized.
To reap more profits, firms have to con-
tinually search for ways to decrease
production costs as well as to increase
customer value. The urge of competing
producers to innovate perpetuates an
ongoing progress in terms of produc-
tive efficiency – efficiency accrues to
the industry when the least costly pro-
duction, relative to its value, prevails
in the competition. As both productive
and allocative efficiency improve with
competition, the welfare gain to the so-
ciety from the market operation is in-
creased. This microeconomic charac-
terization of price competition is the
foundation of the logic of how struc-
ture, conduct, and performance are
linked, and is central to the true notion
of market performance.
In order to compete, sellers must make
their products more attractive in the
eyes of buyers. For this end, improved
quality and/or reduced prices are the
most direct and effective competitive
instruments that sellers can use. These
actions immediately yield a better effi-
ciency performance. It is clear now
that the mechanism that drives firms
to offer what consumers desire – more
value for money – is the sine qua non
for market competition to enhance eco-
nomic performance. It follows that dif-
ferent market structures (i.e. perfect
competition, monopolistic competi-
tion, oligopoly, duopoly, and mo-
nopoly) cause individual sellers to
show varying degrees of aggression to
furnish what buyers demand, which
dictates the state of efficiency (perfor-
mance) of the market. This account is
at the core of the S-C-P model; there-
fore, any proposition about market per-
formance has to be consistent with this
premise in order to be workable.
By virtue of the economic efficiency,
measures of market performance used
in IO economics have focused on un-
veiling the extent of the exercised mar-
ket power of sellers in a market
(Carlton & Perloff 1994). This is simply
because the presence of market power
(a byproduct of the lack of competition)
impedes attainment of the market ef-
ficiency. A market is said to perform
poorly if undue market power is expe-
rienced. To detect market power, one
commonly used indicator is the price-
cost markup or the Lerner index. This
measurement expresses how far the
market price of a good exceeds the
marginal cost of production. Two other
performance gauges are rate of return
and Tobin’s Q (Carlton & Perloff 1994).
A rise in either measure corresponds
to an increase in sellers’ joint profit
and thus signals a larger likelihood of
supernormal profits, ceteris paribus.2
The pervasive use of price-based mea-
www.mediajournal.org
sures for market performance suggests
that price is by far the most prominent
decision instrument used by firms to
compete – at least from the viewpoint
of economists. No doubt, firms may
still engage in non-price competition,
such as offering quality in various
forms, but for any other dimension of
 competition to be meaningful enough
to fit in the S-C-P model, it has to meet
the logical prerequisite of the model,
as stated above.
Media Performance
and Its Relationship to
Market Structure
A theory is of little utility if its vari-
ables or constructs are ill-defined. The
meaning of ‘performance’ in S-C-P me-
dia studies is, all too often, developed
according to one’s specific need of
analysis rather than being based on a
systematic economic understanding,
and so has been invested with multi-
farious but incoherent views. For many
other scholars who argue from a social/
political standpoint, ‘performance’
symbolizes certain social responsibili-
ties for the mass media to fulfill for the
betterment of a democratic society. In
his writings championing the S-C-P
framework for the analysis of the me-
dia industry, Gomery (1989, 1993) pro-
pounded several criteria to judge the
media’s performance. These qualities
encompassed freedom of speech, pub-
lic order, diversity, and access, among
others. McQuail (1992) put forward a
similar proposition. It has become in-
creasingly frequent for media market
researchers to judge or measure perfor-
mance according to whether certain
socially oriented objectives – equality,
participation, cohesion, etc. – are met
(Gomery 1993, 2000; McQuail 1992;
Busterna 1988b; Lacy & Fico 1991;
Napoli 2001). Such views regarding the
performance of the media market
closely reflect the tenet in the arena of
policy: market competition can spur
media owners to pursue social and cul-
ture values as well as generate eco-
nomic benefits. Despite the importance
www.mediajournal.org
of these values to the peculiar nature
and role of the media system, function-
ing as both a social organization and a
business, these interpretations are at
odds with the economic construction of
market performance and, thus, may
amount to a rather inaccurate applica-
tion of the S-C-P model.
One analyst’s adopted approach, from
various possibilities, to judging the
media is embedded in the position of
his or her perspective along the mar-
ket versus social-value continuum
(Entman & Wildman 1992). For the so-
cial school, treating the media as just
a pure enterprise sector is disconcert-
ing: if the media’s social fabric is
downplayed, then they will be reduced
to ‘just another business’ for which
commercial forces are the only master
(Gomery 2000). That said, however, ap-
plication of the S-C-P model in the con-
text of the media does not concern the
lofty debate about the choice between
social or economic approaches, but re-
sides, rather, in the practical question
of whether the structure-conduct-per-
formance logic can still be maintained
when performance is defined in terms
of a social dimension. In order to en-
sure a consistent use of the S-C-P frame-
work, we need to ask whether or not
the level of the social performance of
the media systematically corresponds
to the state of the market.
The non-economic view of defining per-
formance variables as described above
and relating them to the market struc-
ture assumes that increased market
competition results in a greater satis-
faction of such given performance cri-
teria. That is, it is held that these per-
formance qualities can be driven by
market competition. 3 However, the
proposition is vulnerably dependent
on two assumptions. First, audience
members must individually ‘demand’
these qualities. Second, media firms
must compete with one another in
these dimensions to attract audiences
or advertisers, and must adjust the
level of these qualities in their prod-
ucts in order to optimize their competi-
tive position vis-à-vis their rivals.
These assumptions are debatable, if not
altogether untenable.4 The grounds for
them are left entirely unarticulated in
the literature. We know very little
about how important social quality is
in individuals’ decisions regarding
© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV 277
media viewing, listening, and purchas-
ing. Does one really prefer a television
program that promotes ‘public order,’
all other things being equal? Do indi-
viduals actually receive utility (or en-
joyment) from consuming media
goods that score high in ‘social fair-
ness’? If the answers are negative, pos-
sessing social quality or not is not a fac-
tor in the competition between media
firms. It, then, will challenge or even
overthrow such S-C-P applications.
In fact, the competition-social media
performance relationship inf licts a
painful lack of research support. Little
empirical effort has been devoted to
this proposition and even those stud-
ies that dealt with it landed on no solid
results (Shoemaker & Reese 1991). 5
McQuail (1992) also admitted the fail-
ure of extant research to establish co-
gent empirical connections between
competitive conditions and the social
performance terms. This blatant
vacuum of evidence leads us to the in-
ference that media producers, whether
competitive or not, do not respond to
socially desired qualities insofar as
these qualities are not demanded or
valued by media users. With no basis
for commercial forces to be conducive
to the claimed social media qualities,
such an alternative interpretation of
the economic S-C-P model is unfounded
or self-serving at best. For sure, media
organizations, more than any other sec-
tors, operate both in the political and
economic spheres. Yet, we should be
wary of attributing the media’s social/
political functioning to market forces.
We have already been warned of the
danger of the conviction that competi-
tion improves the social performance of
media (e.g. Krattenmaker & Powe 1994;
Mullainathan & Shleifer 2002).
Of course, one should not leap to a
blanketing conclusion that media
firms’ market actions have no impact
whatsoever on the social being of their
consumers. Violent programs, for ex-
ample, aired by ratings-fighting televi-
sion broadcasters, give rise to antisocial
behavior among their audiences. A di-
versity of ideas and views presented by
the media contributes to an informed
citizenry and, in turn, is beneficial to
the constituents of society (Entman &
Wildman 1992). These inf luences,
though hardly disputable, arise not
from a purposeful business decision,
but in the form of a cost or benefit ex-
ternal to the direct transactions be-
tween the users and suppliers of me-
dia products (e.g. Entman & Wildman
1992; Hamilton 1998). Those social per-
formances expected of the mass media,
in fact, are externalities of the media
firms’ economic operation or the ef-
fects of the externalities. Optimizing
these externalities (i.e. minimizing
negative externalities and maximizing
positive ones) for society is beyond or
even against the firms’ egoistic profit
consideration. This is the cause of ‘mar-
ket failure.’
To correct market failure, we need to
internalize the external factors into
the firms’ business decision-making,
which requires government interven-
tion or firms’ self-regulation (or coor-
dination). In this case, the market
structure being competitive or not has
no a priori relationship with the opti-
mization of the externalities, in con-
trast to the fact that market structure
is systematically associated with the
efficiency performance.
The faith in the ability of market forces
to compel social media responsibilities
seems to be allied to the widespread
overstatement of the power of market
competition. This discussion has
explained that market competition
may fall short to achieve certain pub-
lic-interest goals. Rivalry between
firms can advance qualities that are de-
manded by buyers, but not those that
are not so.
Measuring Diversity as
Media Performance
It is a tradition within media econom-
ics research to trace the content diver-
278 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV
sity presented by a media market and
its relationship to market competi-
tion.5 The issue of media diversity is
merely one aspect of the broader
theme of media performance, but it is
important in its own right since the
pluralism of ideas, opinions, values,
and so on, and the multiplicity of
forms that convey them are considered
as a cornerstone of a modern demo-
cratic citizenry.6
An article of faith within diversity re-
search remains that market competi-
tion in a media industry affects the
diversity of the content created. Some-
times, competition and diversity are
even treated as interchangeable (e.g.
Napoli 2001). The concept of competi-
tion, however, is left too broad to be
properly operationalizable: Almost all
studies in this line of research measure
competition by counting firms. This
measurement equates competition
with the mere existence of the multi-
plicity of suppliers, and readily as-
sumes that more rivalrous behavior
and effects take place among a larger
cohort of sellers by default. But, the po-
tential for competition is not equal to
competition itself. No consensus has
been reached among economists on a
strict relationship between market con-
centration and the intensity of compe-
tition (Scherer & Ross 1990). The bulk
of attempts that claimed to measure
the competition effect on diversity ac-
tually measured the ownership
(source) diversity-content diversity rela-
tionship, to be precise. The bifurcated
results that emerge from these at-
tempts even add to the conundrum of
media diversity.
Causality studies on diversity are very
few as Napoli (2002) noted. Among
these studies, some have found a posi-
tive empirical association between the
count of independent media suppliers
or channels and the diversity level. Oth-
ers, however, have found the opposite
relationship. In their 1994 study,
Hellman and Soramaki showed that
concentration went against the diver-
sity of video content in the videocas-
sette market; though they reached op-
posing results in their earlier work
(1985). In regard to the popular music
record market, Peterson and Berger
(1975) and Rothenbuhler and Dimmick
(1982) attributed the higher variety of
music content to their market compe-
tition measures, while Burnett (1992)
discovered a trend of firm concentra-
tion-related music diversity from 1981
to 1989. Dimmick and Pearce (1976)
demonstrated a link between the diver-
sity of US prime-time programs and
competition, even though Lin (1995a &
1995b) obtained results that showed
that prime-time diversity decreased in
response to the mounting competition
during the 1980s compared to the
1970s. Likewise, there was a stark con-
trast in the findings regarding newspa-
per competition and diversity (see Li
and Chiang 2001 for a review). In sum,
little systematic insight can be derived
from the potpourri of findings into
source-content diversity.
Furthermore, in the media diversity lit-
erature, the logic of the competition-
diversity relationship is scarcely under-
stood, so ad hoc explanations are
usually used to account for whatever
results are arrived at. One major gap
in understanding of the issue is the
black box about how exactly media
content diversity can sprout from com-
petition. Without a theoretical basis,
research efforts of this sort are prone
to an inability to generate any useful
insights into the question of how we
can rely on markets to create media
diversity. In the language of content
diversity there seems to be a belief, al-
beit a vague one, that competing con-
tent suppliers individually offer higher
diversity as an economic good to out-
www.mediajournal.org
shine each other. This view is incom-
plete, if not incorrect altogether.
Media offerings, by nature, are differen-
tiated products (Rosse & Dertouzos
1978). As Hotelling- product sellers,
media firms distinguish their content
products to avoid head-to-head rivalry,
 that they would otherwise face in a ho-
mogenous product market. Hotelling
differentiation is prevalent in many
media, such as local TV news and ra-
dio programming (Powers 2001; Rogers
& Woodbury 1996), magazines, and
cable television channels.
Under such monopolistic competition,
oligopolies strive to carve out a market
for its product amid consumers with
heterogeneous tastes.7 An assorted sup-
ply arises naturally when producers each
serve a new profitable market niche
(Entman & Wildman 1992).8 The land-
mark program choice models developed
by Steiner (1952), Beebe (1972, 1977), and
Owen and Spence (1977) offered a for-
mal treatment of Hotelling-type media
diversity and its relation to market con-
dition. The model of monopolistic com-
petition, while widely referred to, has
not been operationalized in the empiri-
cal diversity work. Given that, it is help-
ful to explain the dynamics of Hotelling
differentiation and its meaning to the
media diversity investigation.
In pure Hotelling competition, indi-
vidual producers do not compete in cre-
ating within-firm diversity. Instead, the
product variety of the market is pre-
sented collectively by all firms, who ac-
tually feel no need to produce indi-
vidual diversity. In other words,
diversity occurs as a result of the exist-
ence of differentiated firms, but not
from any firm’s production decision.
Thus, it is more logical to regard market
diversity as a demonstration of differen-
tiated competition rather than as mar-
ket performance. If diversity is desirable,
then performance should be referred to
as the creation of (or allowance for) firm-
multiplicity in the first place, or the fos-
tering of factors that can increase viable
www.mediajournal.org
media sellers (differentiated).
The maximum number of differenti-
ated firms in the competitive market
is determined by exogenous variables
– those that are beyond individual
firms’ decision or control: market size,
distribution of taste groups, size of en-
try barriers, operation costs, and so on
(Mankiw & Whinston 1986; Waterman
1989/90). Any change in the number of
differentiated goods produced (or the
level of diversity) directly ref lects a
shift in any of the factors. For example,
the continual progress in music record-
ing and production technologies re-
duced the entry barriers to and the
operation costs of the music business,
so more music companies came along
producing more CD titles (Gandal,
Kende & Rob 2000). The satellite televi-
sion channel market underwent a simi-
lar evolution. Social-value adherents
welcome every increase in the media
output diversity as regarded beneficial
to society. For economists, the benefits
of product diversity should be weighed
against the costs of providing it. Exces-
sive entry, even when differentiated, is
considered inefficient and thus so-
cially harmful (Berry & Waldfogel
1999a & 1999b; Mankiw & Whinston
1986; Scherer & Ross 1990).
To empirically inspect effect of compe-
tition in a differentiated media con-
text, we need to understand firms’ in-
teraction and competitive conducts
therein. In a buyer market with dis-
persed tastes, product differentiation
grants sellers market power over the
buyers, who incur disutility (or cost) in
consuming off-taste goods. So, the dif-
ferentiated sellers have certain control
over price, which hence distorts effi-
cient resource allocation (in the sense
that the sellers are able to limit supply
quantity to uphold price).
Whenever profitable entry opportuni-
ties surface, new firms will come in fill-
ing up any taste demand hole being left
out. And, consumers in this market
segment will enjoy from the more di-
rect satisfaction of their wants. As
more and more differentiated entry is
made into the market, the product sup-
ply continuum becomes increasingly
dense and firms serving similar tastes
are offering products increasingly alike
and, so, substitutable to respective con-
sumers (Tirole 1988). Growing substi-
© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV 279
tutability brings about competition
and thus erodes the sellers’ price con-
trol. Given free entry, increasing prod-
uct variety should be accompanied
with more competitive pricing behav-
ior of firms. Accordingly, aside exorbi-
tant entry, the efficiency of the market
improves with the better preference
matching for the buyers and the
cheaper prices. Now, it becomes clear
that a consistent way to quantify this
competition-diversity dynamics is to
relate the floor of diversity of products
to price-cost markups. Following this
logic, we can see, for example, whether
the marginal profit drops in the prolif-
eration of music labels and their re-
cording productions.
Of course, not all media content goods
have a price for users to pay directly. In
“free content” circumstances, insertion
of advertisements can be measured as a
proxy for price, since tolerance of com-
mercial interruptions is the implicit
price that audiences have to bear (Owen
& Wildman 1992).
Without explicitly accounting for the
cost and price factors, explaining the
level of differentiated supply by count-
ing market concentration reveals little
meaningful information. Both the sup-
plier concentration and the demon-
strated content diversity are artifacts of
the fundamental supply and demand
determinants. In light of product differ-
entiation, ascribing the produced diver-
sity to the division of the market pie
among firms is, in fact, tautological.
Then, any observed relationship be-
tween market concentration and diver-
sity is hardly surprising.
There are also situations in which one
media firm offers multiple differenti-
ated products. Prime examples are mu-
sic record companies, satellite TV chan-
nel operators, or movie production
studios. As market concentration in-
creases, firms do not necessarily have a
stronger motivation to provide less di-
verse media products, since any un-
served market niche will invite entry.
Such a strategic behavior of firms
makes the competition/diversity in-
quiry even more bewildering (Young
2000). A market leader has a greater in-
centive to overcrowd the market with
a multitude of products, than if it has
no first-mover advantage, so as to de-
ter prospective differentiated entrants
(Scherer & Ross 1990). This concentra-
tion-diversity relationship becomes
more confounded since a market domi-
nated by the entry-blockading behe-
moth may display more differentiated
goods than what a state of competitive
equilibrium could. For this reason,
niche media channels or products,
even after being acquired by a media
conglomerate, may still be decided to
continue in business, and so diversity
in the media market will not decline
merely because of the acquisition. De-
velopments in the cable programming
channel and the pop music markets,
for example, tend to support this con-
jecture. The findings of Burnett (1992)
on music record diversity are consis-
tent with it.
Within-firm diversity competition does
exist in media industries.9 Multichan-
nel video programming distributors
(MVPDs) – cable and satellite TV opera-
tors – bundle channels into a package
for household subscribers who appre-
ciate variety (Wildman & Owen 1985).
And, competition impels these content
packagers to include more channels
(Waterman & Weiss 1997; Litman &
Ahn 1997). Competing Internet content
providers (like portals) present all-in-
clusive menus. A face-to-face battle be-
tween newspapers leads to a broader
lineup of publication features. Na-
tional television networks, particularly
in the pre-cable era, provide an in-
stance of this too. In this context, what
is offered is not an individually differ-
entiated product, as in the Hotelling
dynamics, but a bundle of diverse me-
dia content. A larger scope of variety
attracts more media customers. Sellers
who wish to compete will then have to
build a sufficiently diverse and, there-
280 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV
fore, long portfolio. Relative to
Hotelling differentiation, market con-
centration or power, here, is more a rel-
evant factor to affect the scope of diver-
sity available in the market.
Needless to say, not all media markets
can be shoehorned into either the pure
Hotelling model or that of within-firm
diversity competition. For other situa-
tions, diversity is generated in a context
that is between the two abstracted char-
acterizations. A media outlet can pro-
duce many differentiated products,
each of which still contains diversity in
itself. Even though the two competition
models do not always apply immedi-
ately, it is very crucial to clarify the dis-
tinction between them so that any me-
dia market when under a diversity
examination can be formally modeled
against these two benchmarks. Any at-
tempt to examine competitive impacts
on diversity should begin by identifying
an appropriate competition model.
Measuring market concentration as an
indicator of competition strength and
taking it as an independent variable of
media diversity risks obscuring the di-
versity analysis.
Market Structure
as the Consequence of
Underlying Product
and Market Characteristics
Many S-C-P analyses in communication
literature are presented from a some-
what narrow and simplistic perspective.
Attention is fixed, by and large, on iden-
tifying the structure of a media market
or industry under study and relating it
to firms’ observed conduct, but little ef-
fort is made to discern how exactly a
particular market structure takes
shape. The market status quo is taken
as given without its drivers being
probed. Such a frame of analysis inevi-
tably leaves untouched questions about
whether market structure is a cause or
consequence. What usually follows is
the impression, given intentionally or
not, that market structure per se is held
accountable for any imperfect competi-
tive deeds of players, and that once mar-
ket concentration is witnessed, struc-
tural remedies or restrictions can be
imposed to rectify the perceived evil.
As others have noted (e.g. Wirth & Bloch
1995; Young 2000), contemporary IO
theory holds that structure, conduct,
and performance are two-way interre-
lated. The concept of a one-way linear
causality of the S-C-P elements has been
regarded as incomplete or faulty. Mar-
ket structure does not only predeter-
mine players’ conduct; firms’ strategies
and actions (e.g. competition, consoli-
dation, integration, predation, and col-
lusion) do influence and alter the sta-
tus of a market. Even setting aside the
bi-directional structure-conduct inter-
relation, the true structure-conduct re-
lationship cannot be brought to light
without the driving market character-
istics being explicitly analyzed.
Market structure neither arises ran-
domly nor exists in isolation. Demand
and production factors rudimentally af-
fect sellers’ business decisions and behav-
iors and, in turn, shape how the market
is organized as it is (Scherer & Ross 1990).
They are pre-conditions that formulate
the players’ profit-maximization prob-
lems, given its rivals, if any. A firm
needs to respond to or optimize these
factors in order to maximize profits.
A good example of market characteris-
tics in the media business is scale
economies: Scale economies of produc-
tion push firms to supply a large out-
put in order to reduce average costs. To
survive in this context, firms will have
to fight for market share. How many
suppliers can live in the market is ex-
ogenously preset by the strength of
www.mediajournal.org
scale economies. Thus, scale econo-
mies, among others, are chiefly respon-
sible for the structural contrast be-
tween media markets that are served
by a single seller (such as a newspaper)
and those that are served by many
(such as cable television channels).
 In a pioneering treatise, Rosse and
Dertouzos (1978, 1979) characterized
the economic traits of media products
– scale economies, public goods, prod-
uct differentiation, and the advertising-
content demand interdependence –
and discussed their implications for
market behaviors. These factors have
come under the scrutiny of various eco-
nomic media studies. Another power-
ful force in the communication mar-
kets is network externality: the values
of communications products and ser-
vices chiefly depend on their user bases
(see Owen & Wildman 1992 for a re-
view). The current sophistication of the
study of media economics is indebted
to the advanced understanding of the
role of these factors in the media mar-
kets. The general wisdom from this line
of research speaks of the intimate link
between these characteristics and the
strong tendency of media industries to
gravitate toward concentration, domi-
nance, or even monopoly.
To many, a concentrated media market
is associated with unsatisfactory media
outputs and regarded as a deleterious
situation that should be prevented.
‘More is better’ is the philosophy reiter-
ated among media commentators and
scholars. But, concentration can arise
innocently from underlying economic
forces besides being caused by egoistic
business conduct. A market, whether
concentrated or decentralized, is likely
to be an upshot of its structural deter-
minants (Panzar 1989). Condemning a
concentrated market for not being oth-
erwise without considering the overrid-
ing structural factors only demon-
strates a particular philosophical
stance. Judging market performance
without incorporating such character-
istics can lead to misguided policy sug-
www.mediajournal.org
gestions. Measures that force a market
out of its natural equilibrium may run
counter to economic efficiency. These
economic characteristics, though well
noted among economists, are yet to re-
ceive deserved attention from commu-
nication researchers who evaluate the
structure and performance of the
media and, especially, who employ the
S-C-P approach. It is suggested that
media market research needs to be bet-
ter informed about market characteris-
tics.
Conclusions
In the quest for an adequate framework
for the analysis of media markets,
much recognition is given to the indus-
trial organization S-C-P model. This
economic model is embraced as a tool
to explore issues concerning media
market performance that preoccupy
communication researchers. This ar-
ticle has addressed common miscon-
ceptions, misunderstandings, and mis-
uses of this framework and expounded
how the utilization of this model can
be enhanced when these f laws are
amended. First, the non-market inter-
pretation of performance in the S-C-P
model made by scholars with a social-
value orientation has been shown as
the victim of its tenuous premise.
Without sufficient justification and
verification, such a proposition re-
mains problematic or, at best, specula-
tive, and analyses based on it are not
able to give valid inferences.
For some, this theory promises to shed
light on how ethical expectations
placed on media operators can be met
in a commercial marketplace. None-
theless, customizing the application of
a theory to specific purposes without
knowing its boundary and constraints
is likely to generate more heat than
light. The way the S-C-P model is made
sense of departs from what was origi-
nally constructed by IO theorists and
empiricists, and, as a consequence, de-
tracts from the value of taking advan-
tage of it.
Second, the article has expressly ex-
plained the relationship between mar-
ket structure and the variety of prod-
ucts within the S-C-P framework. This
helps to unravel media diversity and its
© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV 281
connection to market factors. It is
noted that how much variety is pro-
duced in a content media market is
subject to the specific market dynam-
ics at work, which, indeed, are not uni-
form for all situations. Appropriate
models should be discerned for differ-
ent market conditions. Furthermore,
even for many of the studies that
adopted the S-C-P perspective, the
analysis could have benefited from a
more direct examination of the under-
lying market specifics. By doing this,
the working of media markets can be
better understood.
Lacy and Noh (1997) have already
warned that mass communication
scholars should refrain from advanc-
ing economic models without being
familiar with material from the dis-
cipline first. (Certainly, it is dangerous
for economists to build media market
models without being educated in
mass communication research.) Wild-
man (1998, p. 573) went further, cau-
tioning about the hidden danger in
applying economic theories to the
mass media: ‘while the principles of
economics are general, their applica-
tion to any given industry is not neces-
sarily transparent.’ In order for the S-
C-P model to be productive for the
study of the media market, this article
seeks to clarify the central logic of this
economic framework and its role in the
analysis of media economics and re-
lated studies. While this article does
not assert that market structure has no
impact on or implications regarding
the social aspects of the media under
all circumstances, it has sought to de-
lineate a more consistent and workable
approach to applying the S-C-P para-
digm to analyze the media industry.
Calls have been made to establish a
unique, appropriate paradigm for the
study of media economics (e.g. Gomery
1989; Ramstad 1997), but so far they
remain largely unanswered. As achiev-
ing such requires ongoing effort, this
article has aimed to contribute toward
this goal.
Endnotes:
1 Busterna (1988b) also pointed this out.
2 Other indicators can be considered as the perfor-
mance measurement; for example, Scherer and
Ross (1990) named full employment or equity. But
these aspects’ relationships with market structure
and conduct are far less explored even in the IO
economics literature.
3 Gomery (2000, p. 522) points out: ‘Analysis of eco-
nomic structure (and conduct) initiates and logi-
cally leads to analysis of performance. Indeed,
what media scholars and critics care most about
are the economic linkages to media perfor-
mance.’
4 McQuail (1992, p. 90) observed that, ‘media per-
formance is often assessed by criteria which have
nothing to do with normal business criteria, and
may even be inconsistent or in conflict (for in-
stance, political criteria)....’ Some other proposi-
tions about evaluating media performance are
also seen as incompatible with the reality of the
market. For example, newspaper researchers have
measured space used for news/editorial versus ad-
vertisements as a newspaper’s performance qual-
ity, presuming that commercial messages are un-
desired by readers and so can be reduced by
circulation competition. This postulation unwit-
tingly disregards the fact that advertising mes-
sages are consumed by paper buyers actually as
desired information and hence are a circulation
demand factor (Dertouzos & Trautman 1990). The
expectation is not borne out that competition can
lower the amount of advertisements carried in a
newspaper.
5 Even evidence against the positive role of compe-
tition for social media goals has been reported. For
instance, in an enquiry into market conditions
and the content performance of newspapers, Lacy,
Fico and Simon (1989) detected a negative relation-
ship between competition and journalistic cover-
age fairness or balance. In their model,
Mullainathan and Shleifer (2002) proved that com-
petition exacerbates, instead of redresses, some
form of bias in the media.
6 See Napoli 2001 and McQuail 1992 for arguments
about diversity.
7. Monopolistic competition of the media exists not
merely among firms of the same media form, but
also between media firms that use different com-
munication modes.
8 As profit-motivated producers succeed in carrying
out the differentiation strategy, the market makes
available an assortment of products.
9 Entman (1985) and Entman and Wildman (1992)
coined the term ‘vertical diversity’ in reference to
the degree of product multitude presented by a
single firm. On the other hand, ‘horizontal diver-
sity’ means the variety of all suppliers’ different
products in a market.

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