The structure determines power imbalances: insights from systems thinking by means of the sugar beet case in Belgium

Abstract

According to the theory of Industrial Organization market power is determined by the structure of the market. From a particular structure, market agents’ conduct and performance can be inferred. This relationship is called the Structure-Conduct-Performance (SCP) paradigm. However, due to certain shortcomings, this paradigm is dismissed and substituted by the approach of the New Industrial Organization (NEIO). While the amendments of NEIO are valuable, this paper expands on the importance of structure for the occurrence of market power issues. Systems thinking emphasizes the relevance of structure for the conduct of the whole system and the agents within the system. Thus, systems thinking can be a valuable tool to understand the emergence of market power. With the example of the sugar beet case we demonstrate how systems thinking can support the identification of market power issues. The advantage of systems thinking is that it can be applied as ex-ante tool to policy changes. More over market power may not be measurable in the sugar beet case due to price regulations during the quota system, systems thinking can identify market structures that have the potential to give rise to market power issues. Additionally, systems thinking is a potent means to understand complex matters by holistically taking into account a wide range of variables. In consequence systems thinking can serve as tool to inform policy makers.