Free «Theories of the Competitive Process» Essay Sample

The Austrian theory of competitive process argues that competitive process is a process of dynamic coordination of independently-acting market participants, which promotes discovery by market participants of the availability of and need for exchangeable goods and services (Kallay 2004, p.82). In this respect, goods and services play a very important role towards enhancing the competitive process under the Austrian theory. Therefore, the producers of goods and services focus on innovations and advancements on their goods and services to gain a competitive advantage over their rivals in the market. Thus, good and services are vital in setting price levels as opposed to the influence of the dominant firms in the market. On the other hand, the Post-Keynesian theory of the Competitive process stipulates that price of good and service are determined by the dominant firms in a particular market rather than movement of goods and services in these markets. Therefore, the issue of innovation and further development of good and services play a minimal role in setting competitive prices.

In consistent with this, competition under the Post-Keynesian theories is inherently about dominance in the market. Note that the dominating firms in the market play a vital role in setting the stage for competition. In line with this, the competing firms under the Post-Keynesian theory must be able to possess certain influence in the market, rather than depending on the self-determining market prices. Therefore, Post-Keynesian theory of competitive process depends on the mark-up prices as a way of enhancing the competitive process. On the contrary, the Austrian theory of competitive process argues that the market process is driven by entrepreneurial activity. Furthermore, competition is seen through the lens of entrepreneurial rivalry. In other words, entrepreneurial rivalry is one of the most important factors which promote the competition process. In reference to Prinz, Steenge & Vogel (2001, p.16), competition should be conceived as an ongoing process of entrepreneurial rivalry rather than the existence of perfect competition.

Uncertainly is one of the aspects that are seen in the competitive process under the Austrian theories. In other words, firms are uncertain about the future but they have to speculate on the market conditions, leading a spontaneous process of market activities that results in competition at the end. Prinz, Steenge & Vogel (2001, p.17) argues that for the entrepreneurs involved, competition implies a discovery process or 'a voyage of exploration into the unknown'. However, these firms are motivated by the fact that they would gain profits whenever they participate in this uncertainty process. Furthermore, creativity and innovation is paramount if the firms involved desires to remain in the competitive market. Note that creativity contributes to changing of prices of goods and services that are offered on the market, with firms changing their prices every time they introduce a new product or modify the existing product (Kuper 2003, p.201). This contributes to competition.

On the contrary, the Post-Keynesian theories insist that competition cannot be achieved under creative, innovative and uncertainty condition. In this regard, there is an argument that many of the greatest economic evils of our time are the fruits of risk, uncertainty and ignorance (Dunn 2008, p.84). Furthermore, particular individuals fortunate in situation or in abilities are able to take advantage of uncertainty and ignorance, and this contributes to increased unfairness on the market rather than propagating competitive activities and behaviours (p.84). In line with this, the Post-Keynesian theory of competitive process dismisses the uncertainty that is perceived in the market as the resultant of a competitive environment. To the Post-Keynesian theorists, uncertainty promote unfair competitive environment thus making it impossible to develop the competitive process in a particular market.


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