The model of competition is largely rejected by the Austrian school of thought. Here is an Austrian perspective on competition.
How firms using the same technology adjust output of a homogeneous good is described accurately by models of competition, but this is a trivial aspect of real competition. Traditional analyses fail to address a major source of disequilibrium: the entrepreneur. What matters is how competition affects human progress. According to Austrians, the entrepreneurial innovations are the competitive mechanisms that drive the growth and decline of industries and civilizations.
Entrepreneurs innovate new technologies that create better and cheaper products and force older firms to adapt or perish. The key to entrepreneurial success is finding creative ways to serve human wants by implementing new technologies or marketing new goods better, faster, and at less cost. This can mean producing existing goods at lower costs or enhancing their quality, or it may mean creating markets for entirely new goods.
The U.S. Post Office, for example, was an uncontested government monopoly until United Parcel Service (UPS) was launched by entrepreneurs who thought that people would pay handsomely to have packages delivered faster and more conveniently. Then the founder of Federal Express put competitive heat on both UPS and the Post Office after he successfully tested the market demand for overnight delivery.
This dynamic form of competition creates new industries and destabilizes old ones. Thus, competition as a source of disequilibrium is more important in the Austrian view than the equilibrating entry and exit of firms conventional theory stresses. Austrians share conventional notions about pressures for competitors to adopt cost-saving technology or to mimic successful product lines.
Austrian economists offer countless examples of competition as a robust process, not as a stagnant set of equilibrium conditions specified by competitive models: Gutenberg destroyed handwritten book publishing with his movable type; Thomas Edison's electric light changed our way of life; Henry Ford's assembly line made cars available for the masses. More recently, two young engineers working out of a garage launched Apple Computer and marketed the first personal computers. The original designers of computerized spreadsheets have changed the way accountants work. Members of the Austrian school stress the dynamic competition among entrepreneurs rather than the imitative behavior of firms now scrutinized in the competitive models.
Austrians also charge that competition assumes large numbers of similar firms to be vital for vigorous competition. The stress on numerous competitors is blamed for bizarre antitrust laws and business regulations that strangle much truly competitive behavior among entrepreneurs. The number of competitors is far less important, in this view, than the qualities of goods and the rate of technological advance in an industry. 2539 digits
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