An Economic Theory, Second Edition
Chapter 4: The Competitive Threat to the Entrepreneur
4. The competitive threat to the entrepreneur 4.1 INTRODUCTION The preceding analysis of coordination has assumed that each opportunity is exploited by a single entrepreneur. It has been shown that the entrepreneur can appropriate a private reward which, under certain conditions, is equal to the value of the improvement in resource allocation which he effects. In some cases his reward exceeds this value and in other cases it is less. In the long run, the existence of such potential rewards will bring entrepreneurs into competition with each other in seeking them out. This raises the possibility that a given opportunity could be discovered simultaneously by several entrepreneurs. There is no reason why any of the entrepreneurs should know that others have made the same discovery – at least not until they all seek to exploit the opportunity at the same time. At this point each entrepreneur will become aware of competition through his inability to negotiate a favourable price. He is unlikely to know from precisely where this competition originates. It is possible, of course, that he could identify the source of competition and arrange to eliminate it through collusion. In practice this is likely to prove difﬁcult; for, even if the source of competition could be identiﬁed, a collusive agreement would prove difﬁcult to enforce. The simultaneous discovery of an opportunity for coordination is not, however, the only threat to the entrepreneur. A more serious threat comes from the presence of people seeking to acquire knowledge of...
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