Market structure is determined by the entry and exit decisions of individual producers.rnThese decisions are driven by past profit rate and expectations of future profits which,rnin turn, depend on the nature of competition within the market generally speaking.rnProfitability is therefore directly dependent on the market structure that the f irm hasrnbeen operating in the defined geographic and product market. There are two influentialrnindustrial organization hypotheses that deal with relation between market structure andrnfirms performance. The structure-conduct-performance paradigm believed that firms'rnperformance is highly related with the existence of concentration which directly leads torncollusion among firms in the market and create monopoly power in wh ich all the firmsrnin the industry get monopoly profit. On the other hand, the efficiency hypothesesrnsuggests that firms' performance is determined by efficiency gain in the market whichrnminimizes costs and expands firms' market share so that firm with high market sharern(efficient) will get ' market power and profit rate to each firm depends on theirrnperformance. Based on these classical theories the study examines whether the SCPrnparadigm or the efficiency structure paradigm determines firm's performance. Thernstudy finds that the structural conduct approach holds true in Ethiopian leatherrnindustry. That means, there exists monopoly power in the industry. The concentrationrnratio proxy for monopoly is significant while the efficiency variable explained by thernmarket share is insignificant. The barrier of market entry and exit is also significantrnwhich sustains the monopoly power by avoiding contestabi lity in the domestic market.rnHowever the ten year trend of concentration dynamics has been decreasing from 66%rnto 33%. Thus, if this trend continues the monopoly power may not exist in the nearrnfuture.