Download new currents in the theory of market and competition

NEW CURRENTS IN THE THEORY OF MARKET
AND COMPETITION
1. Standard models of market/competition: market with perfect
competition, monopoly, monopolistic competition,
duopoly
and oligopoly
2. Markets with imperfect competition
 Concept of markets with
information (G.A.Akerloff)
asymmetric
distribution
of
- tenderers (producers, sellers) and purchasers have diversified
information concerning prices and quality corresponding to
respective levels of prices
- informational advantage of tenderers with regard to the
quality of goods leads to negative selection of firms
- equilibrium on a given market emerges but is distorted as
compared to perfect competition situation

Concept of market unequlibrium (new microeconomics)
- as the first concept, also based on the assumption of
imperfect/incomplete information (G.J.Stigler, A.A.Alkian)
- subsequent assumption: informational imperfections can be
diminished but its entire removal does not ensue because high
costs of such removal make it economically irrational
- outcome of above mentioned process: prices do not equalize
demand and supply (no price driven market clearing)
- it mostly relates to the cases when due to high costs it is not
worth to precisely calculate the level of demand (in particular
on goods being characterized by very changeable demand) in
order to strictly (a) adjust supply to demand by a given price
or (2) adjust price to a given supply
3. Competition as a process (L.Misses, A.von Hayek)
 Competition as a catalactic process
- Competition means not the state of the market but a
continuous process of rivalry
- Competition refers to the access to scarce resources or to the
exploration of new resources and/or new manners of their use
- competition as a process consists in acquiring information and
attaining private benefits owing to it
- competition has a spontaneous character but proceeds
according to commonly accepted rules
- a special case here is the concept of J.A. Schumpeter:
competition as the process creative destruction
 Competition as an evolutionary process (evolutionary
economics, evolutionary model of enterprise: R.R.Nelson and
S.G.Winter, A.A.Alchian/M.Friedman)
- generally: reference to the evolution theory, both of Darwin
and based on modern genetics
- competition as a process of natural selection of firms and
their adaptation to changing conditions of the business
environment; adaptation takes place through innovations and
imitation of other enterprises' activities
- the notion of routine as counterpart of genotype in the
biological evolution
- development of enterprises means looking for a new routine;
it ensues through innovations, imitation, takeovers (of
enterprises or their parts), personal mobility. New routine
may be interpreted as the change of genotype in biology or
the mutation
- mutation consists mostly not in finding optimal but only
satisfycing (H. Simon' theory satisfycing behavior) solutions
- new routines are usually not distant from old routines
(Nelsone/Winter) because search for them is typically based
on standard knowledge and experience of enterprises
4. Theory of contestable competition (W.J.Baumol and others)
 Potentially competitive market has a number of features of
perfectly competitive market
- lack of entry and exit barriers
- lack of costs of entry and exit (sunk costs = 0)
- date of entry is meaningless from the point of view of
competitive position
- lack of entry/exit barriers and following conclusion that sunk
costs = 0 means the existence of permanent competitive
pressure both for enterprises operating under conditions of
monopolistic competition and (even) having a full monopoly
position
- potential competition leads (theoretically) to the same results
as perfect competition
- equilibrium is effective even for the case that there is a small
number of tenderers or the goods being offered are not
homogenous
5. Theory of innovation and competition of J.A. Schumpeter
 generally: a kind of evolutionary theory
 general foundation for the competition are innovations and
structural changes in the economy
 point of departure: distinction between economic statics and
dynamics
 dynamics stage (evolution, development): central category for this
stage is the entrepreneur and innovations (very broad understanding
of innovations))
 triad: inventions → innovations → imitation ( diffusion of
innovations)
 innovation as the source of entrepreneurial profit
 development as a process of creative destruction
 innovation and the spirit of entrepreneurship in the light of business
concentration process and "managerial revolution"