Competition and Entrepreneurship

Posted: 4 Nov 2009

See all articles by Israel M. Kirzner

Israel M. Kirzner

New York University (NYU) - Department of Economics

Date Written: 1973

Abstract

Kirzner, writing from a neo-Austrian economic perspective that is inherently dynamic with an emphasis on action over time, offers a critique of the prevailing positivistic, value freedom of orthodox microeconomics and price theory, focusing on what he believes is its unrealistic emphasis on static equilibrium analysis. Kirzner criticizes the methodology of Robbinsian equililbrium analysis in which a competitive market is a situation in which buyers and sellers have perfect knowledge and in which decision-making is mechanical and its solutions given. This analysis, according to Kirzner, eliminates all consideration of the competitive process and of entrepreneurship (which is synonymous, for him, with competitive activity); the assumption of perfect knowledge is unrealistic. He offers a full elaboration of the Mises-Hayek view of entrepreneurship and competition as a process based on von Mises' idea of "human action" rather than Marshall's idea of economizing. Kirzner sees the entrepreneur as always alert to information and propelling the system forward by seeking out price discrepancies as opportunities for profit. This process depends not on impulses from technology or genius; rather every market participant is a potential entrepreneur who can exploit a situation, which depends on a lack of perfect knowledge among the market participants. Entrepreneurial activity is always competitive; and competitive activity is always entrepreneurial. Kirzner is thus also a critique of the Schumpeterian view of entrepreneurship as disrupter of equilibrium; rather the entrepreneur removes disequilibrium in a short-run movement to an equilibrium position. A Kirznerian entrepreneur is a decision-maker whose entire role arises from alertness to unnoticed opportunities or knowledge about market data. Within the context of entrepreneurial activity, he offers a neo-Austrian redefinition of the concept of monopoly and competition. Since for Kirzner entrepreneurship involves no element of resource ownership, monopoly is defined as the impact of input ownership on the competitive process, and not the shape of the demand curve facing a firm. A monopoly position can be won by an alert entrepreneur. In the light of his theory of competition, Kirzner provides a new theoretical place for advertising and selling costs. Advertising, which promotes and calls attention to product differentiation, is the "weapon" of competition, which allows competitive-entrepreneurial adjustments in the type of products placed in the market in disequilibrium. Kirzner's revaluation of advertising is thus opposed to the idea of advertising as a social waste. Kirzner also offers a new conception of economic welfare based on the "coordination-of-knowledge-and-actions" instead of the orthodox "allocation of social resources" standard. (TNM)

Keywords: Price theory, Austrian school of economics, Economic theory, Microeconomics, Equilibrium, Market competition, Monopolies, Advertising, Schumpeter, Joseph A., Mises, Ludwig von

Suggested Citation

Kirzner, Israel M., Competition and Entrepreneurship (1973). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Available at SSRN: https://ssrn.com/abstract=1496174

Israel M. Kirzner (Contact Author)

New York University (NYU) - Department of Economics

269 Mercer Street, 7th Floor
New York, NY 10011
United States

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