1. The Meaning Of Competition by F.A. Hayek Presentation copyright ©1997, 1998, 1999 by Barry and Deborah Brownstein

2. Perfect Competition- A ‘Traditional’ Model n homogeneous product offered and demanded by a large number of relatively small buyers and sellers n free entry into the market n perfect knowledge of the relevant factors on the part of all participants in the market

3. Problems With ‘Perfect’ Competition l “It will be obvious also that nothing is solved when we assume everybody to know everything and that the real problem is rather how it can be brought about that as much of the available knowledge as possible is used.” l “Competition is by its nature a dynamic process whose essential characteristics are assumed away by the assumptions underlying static analysis.” l “Advertising, undercutting and improving ("differentiating") the goods and services produced are all excluded by definition-"perfect" competition means indeed the absence of all competitive activities.”

4. Advantages of ‘Competition as a Discovery Procedure’ " Useful knowledge is widely dispersed and expensive to collect. What economist F.A. Hayek called "competition as a discovery procedure" allows us to find new ideas through decentralized trial and error...”- Forbes Magazine (December 2, 1996) ‘only through the process of competition that the facts can be discovered.’ teaches the consumer who will serve him well. decentralized ‘processing of information is key to the’ spontaneous or extended order.

5. How Should Competition in a Market Be Judged? “The basis of comparison, on the grounds of which the achievement of competition ought to be judged, cannot be a situation which is different from the objective facts and which cannot be brought about by any known means. It ought to be the situation as it would exist if competition were prevented from operating.”

6. Are Markets Path-Dependent? Path dependence is the idea that once you down a certain path it is hard to get off and thus the inferior product can win Advocates of path dependence give these familiar examples –Beta Vs. VHS –Apple Vs. DOS –Dvorak Vs. Qwerty keyboard The idea of path dependence is built on a subjective notion of inferior and seems to minimize the role of the competitive discovery process

7. Appendix: Is Microsoft Anti- Competitive? “The financial interests of the lawyers and economists who make up this (anti-trust) industry …is in the promotion of complex and ever- changing “rules of the game” that inflate the demand for their services” the discovery process of the market discovers new ways to satisfy consumer demand price is falling, quality is increasing

8. Microsoft Continued Consumers determine their optimal product mix- for example they prefer to buy a car not a kit consisting of an engine and radio etc. Control of the browser market does not control the internet (content) We will see that discovery is embedded in the market process –restricting innovation is anti-consumer If Microsoft is a ‘dangerous monopoly’ what about public schools, the post-office, social security etc.

9. The Future of Microsoft danger to the market process of turning Microsoft into a regulated utility hegemony in one area does not guarantee leadership in other areas –Microsoft’s difficulties in selling software smaller single use ‘appliances’ and Internet telephones In the coming world of cheap bandwidth has Microsoft bet too much on proprietary software?

10. Appendix: Proprietary vs. Open Platforms In a networked economy closed systems have to open up or fail –Apple –Citibank’s first non-network ATMs in the 70’s Two camps in Microsoft –create a cross platform rival to Java-Brad Silverberg –keep focus on Windows- Jim Allchin “There’s nothing about that slide that I like…hasn’t anybody here heard of Windows”- Bill Gates