Competition: Difference between revisions
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'''Competition''' | '''Competition''' in the Austrian sense is rivalry: the effort of independent sellers to win the custom of buyers by offering better terms than the others, and of buyers to secure scarce goods by outbidding one another. It is a process that goes on through time, not a state of affairs, and it is the mechanism by which a [[market]] discovers facts that nobody knew before it operated. | ||
This ordinary meaning has to be stated first because mainstream economics uses the same word for something almost opposite, and the confusion has consequences for policy that Austrians regard as severe. | |||
==Competition as a discovery procedure== | |||
[[F.A. Hayek]] argued that competition is worth having precisely because we do not know in advance what it will reveal. Which methods are cheapest, which products buyers prefer, and what a thing ought to cost are not data available to anyone before the rivalry takes place; they are its output. A procedure whose point is to discover unknown facts cannot be judged by whether its results match what an observer assumed those facts to be, because if they were known there would be nothing to discover and no reason to compete. | |||
This is why the [[entrepreneur]] is central to the Austrian account and absent from the standard one. Competition in the textbook model is a condition that firms find themselves in; competition here is something people do. | |||
==Perfect competition== | ==Perfect competition== | ||
{{Main|Perfect competition}} | {{Main|Perfect competition}} | ||
Under perfect competition, firms are assumed to operate in a market characterized by a homogeneous product, an infinite number of buyers and sellers, the absence of any barriers to entry, and with access to [[perfect information]].<ref name="causal_realist">[[Peter Klein]] | Under perfect competition, firms are assumed to operate in a market characterized by a homogeneous product, an infinite number of buyers and sellers, the absence of any barriers to entry, and with access to [[perfect information]].<ref name="causal_realist">[[Peter Klein]] "Fundamentals of Economic Analysis: A Causal-Realist Approach", 2007, Lecture 7 Competition and Monopoly.</ref> | ||
This "pure and perfect competition" is unlike anything one normally means by the term "competition." Normally, one thinks of competition as denoting a rivalry among producers, in which each producer strives to match or exceed the performance of other producers. This is not what "pure and perfect competition" means. Indeed, the existence of rivalry, of competition as it is normally understood, is incompatible with "pure and perfect competition." Consider the following passage in a widely used economics textbook by Professor Richard Leftwich:<ref name="Reisman_Platonic">[[George Reisman]]. [https://mises.freecapitalists.org/daily/1988 "Platonic Competition"], December 20, 2005. Referenced 2011-11-17.</ref> | This "pure and perfect competition" is unlike anything one normally means by the term "competition." Normally, one thinks of competition as denoting a rivalry among producers, in which each producer strives to match or exceed the performance of other producers. This is not what "pure and perfect competition" means. Indeed, the existence of rivalry, of competition as it is normally understood, is incompatible with "pure and perfect competition." Consider the following passage in a widely used economics textbook by Professor Richard Leftwich:<ref name="Reisman_Platonic">[[George Reisman]]. [https://mises.freecapitalists.org/daily/1988 "Platonic Competition"], December 20, 2005. Referenced 2011-11-17.</ref> | ||
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"By way of contrast, intense rivalry may exist between two automobile agencies or between two filling stations in the same city. One seller's actions influence the market of the other; consequently, pure competition does not exist in this case."<ref name="Leftwich_Price">Richard H. Leftwich and Ross D. Eckert, [http://books.google.com/books?id=96S7AAAAIAAJ&q=intense+rivalry#search_anchor "The Price System and Resource Allocation"], 9th ed., The Dryden Press, Chicago, 1985, p. 41. Referenced 2011-11-17.</ref> | "By way of contrast, intense rivalry may exist between two automobile agencies or between two filling stations in the same city. One seller's actions influence the market of the other; consequently, pure competition does not exist in this case."<ref name="Leftwich_Price">Richard H. Leftwich and Ross D. Eckert, [http://books.google.com/books?id=96S7AAAAIAAJ&q=intense+rivalry#search_anchor "The Price System and Resource Allocation"], 9th ed., The Dryden Press, Chicago, 1985, p. 41. Referenced 2011-11-17.</ref> | ||
[[F.A. Hayek]] argues that competition is the more important the more complex or "imperfect" are the objective conditions in which it has to operate. Indeed, far from competition being beneficial only when it is "perfect," the need for competition is nowhere greater than in fields in which the nature of the commodities or services makes it impossible that it ever should create a perfect market in the theoretical sense.<ref name="Hayek_Competition">Friedrich A. Hayek. [https://mises.freecapitalists.org/daily/4181 "The Meaning of Competition"], from | [[F.A. Hayek]] argues that competition is the more important the more complex or "imperfect" are the objective conditions in which it has to operate. Indeed, far from competition being beneficial only when it is "perfect," the need for competition is nowhere greater than in fields in which the nature of the commodities or services makes it impossible that it ever should create a perfect market in the theoretical sense.<ref name="Hayek_Competition">Friedrich A. Hayek. [https://mises.freecapitalists.org/daily/4181 "The Meaning of Competition"], from ''Individualism and Economic Order'' (1948), referenced 2011-11-17.</ref> | ||
==References== | ==References== | ||
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|pages=9-23 | |pages=9-23 | ||
|doi=10.1007/s12113-002-1029-0 | |doi=10.1007/s12113-002-1029-0 | ||
|url= | |url=https://freecapitalists.org/journals/qjae/qjae5-3-3/ | ||
}} | }} | ||
* {{cite encyclopedia | * {{cite encyclopedia | ||
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[[Category:Economic concepts]] | [[Category:Economic concepts]] | ||
Latest revision as of 13:10, 16 August 2026
Competition in the Austrian sense is rivalry: the effort of independent sellers to win the custom of buyers by offering better terms than the others, and of buyers to secure scarce goods by outbidding one another. It is a process that goes on through time, not a state of affairs, and it is the mechanism by which a market discovers facts that nobody knew before it operated.
This ordinary meaning has to be stated first because mainstream economics uses the same word for something almost opposite, and the confusion has consequences for policy that Austrians regard as severe.
Competition as a discovery procedure
F.A. Hayek argued that competition is worth having precisely because we do not know in advance what it will reveal. Which methods are cheapest, which products buyers prefer, and what a thing ought to cost are not data available to anyone before the rivalry takes place; they are its output. A procedure whose point is to discover unknown facts cannot be judged by whether its results match what an observer assumed those facts to be, because if they were known there would be nothing to discover and no reason to compete.
This is why the entrepreneur is central to the Austrian account and absent from the standard one. Competition in the textbook model is a condition that firms find themselves in; competition here is something people do.
Perfect competition
- Main article: Perfect competition
Under perfect competition, firms are assumed to operate in a market characterized by a homogeneous product, an infinite number of buyers and sellers, the absence of any barriers to entry, and with access to perfect information.[1]
This "pure and perfect competition" is unlike anything one normally means by the term "competition." Normally, one thinks of competition as denoting a rivalry among producers, in which each producer strives to match or exceed the performance of other producers. This is not what "pure and perfect competition" means. Indeed, the existence of rivalry, of competition as it is normally understood, is incompatible with "pure and perfect competition." Consider the following passage in a widely used economics textbook by Professor Richard Leftwich:[2]
"By way of contrast, intense rivalry may exist between two automobile agencies or between two filling stations in the same city. One seller's actions influence the market of the other; consequently, pure competition does not exist in this case."[3]
F.A. Hayek argues that competition is the more important the more complex or "imperfect" are the objective conditions in which it has to operate. Indeed, far from competition being beneficial only when it is "perfect," the need for competition is nowhere greater than in fields in which the nature of the commodities or services makes it impossible that it ever should create a perfect market in the theoretical sense.[4]
References
- ↑ Peter Klein "Fundamentals of Economic Analysis: A Causal-Realist Approach", 2007, Lecture 7 Competition and Monopoly.
- ↑ George Reisman. "Platonic Competition", December 20, 2005. Referenced 2011-11-17.
- ↑ Richard H. Leftwich and Ross D. Eckert, "The Price System and Resource Allocation", 9th ed., The Dryden Press, Chicago, 1985, p. 41. Referenced 2011-11-17.
- ↑ Friedrich A. Hayek. "The Meaning of Competition", from Individualism and Economic Order (1948), referenced 2011-11-17.
Bibliography
- Bastiat, Frédéric (1996). "Competition". Economic Harmonies. Irvington-on-Hudson, New York: Foundation for Economic Education. pp. 284-316. ISBN 0-910614-13-X. OCLC 36038045. http://oll.libertyfund.org/title/79/35538.
- Bastiat, Frédéric (2011). "Competition". The Bastiat Collection (2nd ed.). Auburn, Alabama: Ludwig von Mises Institute. pp. 743-776. ISBN 978-1-61016-200-5. OCLC 779356719.
- Hayek, F. A. (2002). "Competition as a Discovery Procedure". The Quarterly Journal of Austrian Economics 5 (3): 9-23. doi:10.1007/s12113-002-1029-0. https://freecapitalists.org/journals/qjae/qjae5-3-3/.
- Kasper, Wolfgang (2007). "Competition". In Henderson, David R.. The Concise Encyclopedia of Economics. Indianapolis, Indiana: Liberty Fund. pp. 73-76. ISBN 978-0-86597-665-8. OCLC 123350134. http://www.econlib.org/library/Enc/Competition.html.
- Salin, Pascal (1995). La concurrence. Que sais-je?. Paris: PUF. ISBN 2-13-046677-X. OCLC 32497366.
Links
- Competition at Wikipedia
- "The Meaning of Competition" by Friedrich A. Hayek, Monday, March 15, 2010