Representatives of the neo-Austrian school L. Mises and F. Hayek refused to recognize the equilibrium approach as the main method of analyzing economic phenomena, and the search for equilibrium conditions – the main task of economic theory.
In Hayek’s views on competition, the most interesting are:
comparative characteristics of the competitive mechanism and the mechanism of central planning; comparison of competition with science and characteristics of the main functions of market competition; attitude to the role of the state in maintaining competition.
These issues are set forth in such works as: “The Road to Slavery”, “Harmful Arrogance”, “Competition as a Procedure for Discovery”, etc.
In practical life, F. Hayek notes, markets function precisely because the conditions of perfect competition are not met; in particular, because there is not and cannot be full awareness. Full awareness means predictability, certainty of the economic environment, and, therefore, the absence of significant entrepreneurial risk. In reality, economic dynamics means a constant change in the economic environment, the unpredictability of cyclical changes, structural changes in production and needs, and the difficulty of responding to these changes in a timely manner. This increases the uncertainty and risk of entrepreneurship, determines the value of competition.
So, we can conclude that the main functions of Hayek competition are:
identification and synthesis of information scattered among a multitude of market agents and often implicit; stimulating the search for new economically significant information; coordination of actions aimed at different goals; organization and coordination of individual efforts [2 pp.38–58].
In modern science, the following approaches to the definition of the concept of competition have been formed. Like any important concept, the term “competition” has many interpretations. And the idea of the very dissimilar meanings that economists put into this word is certainly useful for orientation in the extensive literature of the issue.
The subsequent presentation is mainly based on the most complete in the literature review of the definitions of competition, made by Yu.I. Korobov (Saratov Academy of Economics).
Etymologically, the word “competition” goes back to the Latin “CONCURRENTIA”, meaning “collision”, “competition” (“to run to the goal”). It is this behavioral interpretation of this category that was originally established in the economic literature. Adam Smith, in particular, associated competition with honest, non-collusive rivalry between sellers (or buyers) for the most favorable conditions for the sale of goods. At the same time, he saw price changes as the main method of competition.
In the future, the behavioral understanding of competition was improved in the direction of more accurate indication of its purpose and methods of conduct. Thus, in the Marxist interpretation, competition is called “inherent in commodity production … antagonistic struggle between private producers for more favorable conditions for the production and sale of goods” (Great Soviet Encyclopedia).
The neoclassical version of the behavioral interpretation of competition associates it with the struggle for rare economic goods and, of course, for the consumer’s money with which they can be purchased. The logic of this approach is that most goods (goods, services, resources) are rare in the sense that their quantity is less than the potential need of society. Therefore, the owners of goods have the opportunity to distribute them, guided by their own benefit. They set their own conditions or criteria (the required level of prices, quality, etc.) and, depending on the fulfillment of these conditions, decide who to provide benefits to and to whom not. “Competition is the desire to satisfy the criteria for access to rare goods as best as possible,” says the modern American economist P. Heine, i.e. as a kind of mechanism for free competition and rivalry of commodity producers. Undoubtedly, in the spirit of the behavioral interpretation of competition, the works of M. Porter, which are fundamental for this course, have been written.
Along with the behavioral interpretation in the XIX and especially in the XX century, the structural interpretation became widespread. Its origins go back to the works of F. Edgeworth, A. Cournot, J. Robinson, E. Chamberlin and other prominent scientists who laid the foundation for modern Western theory of four main types of markets: perfect competition, monopolistic competition, oligopoly and monopoly. The positions of this group of scientists in modern Western economic science are so strong that the term “competition” itself is more often used in the structural sense. If it is necessary to emphasize the behavioral side of competition, they often use another word – “rivalry” (“rivalry”).
With the structural approach, the emphasis shifts from the very struggle of companies with each other to the analysis of the structure of the market, the conditions that prevail on it. Thus, F. Knight defines competition as a situation in which there are many competing units, and they are independent. By now, this position has become a common place in textbooks. In particular, the popular economics course of C.R. McConnell and S.L. Brew states that “competition is the presence in the market of a large number of independent buyers and sellers, the opportunity for buyers and sellers to freely enter and leave the market.”
The same idea can be expressed in another way: the focus is not on the rivalry of firms in setting the price, not on finding out who won and why, but on establishing the fact of the fundamental possibility (or impossibility) of the firm’s influence on the general level of prices in the market. If such an impact is not possible, then we are talking about a market of perfect competition, otherwise it is one of the varieties of imperfect competition.
That is, it is assumed that competition is a market situation, which is characterized by: the presence of a large number of independent buyers and sellers of a particular product or resource; freedom for buyers and sellers to enter or leave the market.
The third approach to defining competition is functional. It describes the role that competition plays in the economy. I. Schumpeter, in particular, within the framework of his theory of economic development, defined competition as the rivalry of the old with the new. Innovations are skeptically accepted by the market, but if the innovator manages to implement them, it is the mechanism of competition that displaces enterprises using outdated technologies from the market.
F. von Hayek considered competition from a completely different angle, calling it the “discovery procedure”. In his opinion, in the market only thanks to competition, the hidden becomes apparent. For example, in the conditions of a typical lack of information for a real market, several possible lines of behavior of the firm may initially seem equally attractive. And only competition “reveals” which one is actually true and which leads to a dead end.
It’s easy to see that the great scientists who professed a functional understanding of competition were actually little concerned with giving it the “right,” textbook-friendly definition. Rather, in formulating their scathing, memorable definitions, they simply wanted to emphasize the fundamental importance of certain consequences of competition. Let’s make an analogy: money can be defined as “something that is never too much.” And such a definition has the right to exist, because it elegantly draws attention to a really important feature of money – the limitless opportunities that they open up for the owner. That is, competition belongs to the sanitizing function and the stimulating function (macroeconomic approach).
Summarizing the above, we note that it is necessary:
refer to works written within the framework of the behavioral interpretation of competition, if you are interested in the methods of competition, the principles of choosing the strategy of the company’s behavior in the market, etc .; use works written within the framework of a structural approach, when the main problem is the degree of monopolization (or, conversely, openness) of the market; pay attention to the functional interpretation if you are interested in the role of competition in the economy.
The theory of market competition was born relatively recently. There is no established and universally recognized terminology in this scientific discipline yet: almost every researcher uses his own system of designations [19 pp.38-41].
Competition – a competition between producers (sellers) of goods, and in general – between any economic, market entities; the struggle for markets for goods in order to obtain higher incomes, profits and other benefits. Competition is a civilized, legal form of struggle for existence and one of the most effective mechanisms for selecting and regulating a market economy [22 p.60].