Market Process


The Austrian theory of the market explains how knowledge is communicated to different individuals, how innovation is encouraged, how entrepreneurs satisfy consumer demand, and how change arises from within the market. The neoclassical equilibrium models of market structure cannot explain these phenomena. By assuming that market participants have perfect knowledge of market data, and by using output as the sole measure of efficiency, equilibrium models misinterpret communicating and innovating behavior.

The market is an evolutionary process, and not a static equilibrium. Change is inherent in the market, because people learn from their participation in the market. This change tends to allocate resources to the uses most desired by consumers. Entrepreneurs are the agents of this change. Competition is a rivalrous process of trying to do better than one's competitors, not a static situation in which everyone does the same as everyone else.