One of the principal arguments in Israel M. Kirzner’s Competition and Entrepreneurship asserts that entrepreneurship is essentially competitive and that competition is always an exercise of entrepreneurship. There is, according to Kirzner, no economic situation which can qualify for one of these designations without also qualifying for the other.

            Kirzner’s view of competition differs dramatically from the conventional Neoclassical idea of “perfect competition” – a state with infinitely many buyers and sellers, a homogeneous product, a horizontal demand curve for the product (implying price-taking), perfect information, and freedom of entry and exit into the market. In fact, Kirzner’s understanding of competition only shares one similarity with the perfectly competitive view; namely, Kirzner considers a lack of arbitrary barriers to entry to be a necessary feature of unfettered competition.

            Instead of seeing competition as a state with certain characteristics, Kirzner – following in the tradition of Ludwig von Mises and Friedrich Hayek – views it as a process in which we cannot expect to see a given outcome in advance. Kirzner writes:

Clearly, with competition in the process sense the notion of an obstacle to competition   cannot be found in the description of situations or particular sets of actions. We must look for a way of identifying elements in the market which obstruct the course of the competitive process. There is no pattern of actions which, in and of itself, is necessarily inconsistent with a competitive market process. (Kirzner 1973, p. 94)

            While the paradigm of perfect competition considers a lack of perfect information, heterogeneous products, an abundance of advertising, and a limited number of sellers to be examples of uncompetitive situations, Kirzner’s view by no means implies this; competition as a process may well be characterized by any or all of these attributes – along with others that might indicate rivalry among sellers in attracting buyers to their products. 

            Similarly, that there are no aggressive rivalrous actions at any given time does not imply a cessation of competition; Kirzner’s view of competition allows for there to sometimes even be only one seller of a product or one party engaging in a given economic activity.

That in any one period aggressive competitive activities have not been engaged in does   not necessarily mean that the competitive process has come to a halt. It may simply mean that with all their alertness market participants have not yet become aware of the opportunities which exist, but that they will nonetheless surely pounce upon them in a most competitive way as soon as they are perceived. (Kirzner 1973, p. 97)

          Because information in real-world markets is not perfect, a single seller in any given market might simply be the more alert entrepreneur who perceives opportunities for profits to be made while others have overlooked them. In time, others will come to see the same opportunities and enter the market – provided that they have the freedom to do so.

           Thus we arrive at the key condition that must be met for competition to occur: freedom of entry and exit into the market in question. If such freedom exists, then anybody who perceives a pricing discrepancy or a way to economize on costs or a way to fulfill still unmet consumer demands can act on his alertness. “In order, then, for us to speak freely of a lack of competitiveness in a market process, we must be able to point to something which prevents market participants from competing” (Kirzner 1973, p. 97).

            It is only in cases where the would-be entrepreneurs are compelled to refrain from entering into a market of their choice that competition encounters barriers. This can conceivably be done by any entity that wields coercive force.

Competition, in the process sense, is at least potentially present so long as there exist no arbitrary impediments to entry. So long as others are free to offer the most attractive opportunities they are aware of, no one is free from both the urge and need to compete. Only when one is aware that others, despite the possibility of their offering something  more attractive to the market, will be barred from doing so can one feel secure from competition. (Kirzner 1973, p. 97).

            Private mafia groups, labor union violence, government-granted monopolies, state subsidies to existing producers, quotas and restrictions on production, tariffs, and “anti-dumping” regulations all constitute such arbitrary impediments to entry.

            Thus, Kirzner’s view of competition implies that the unrestricted free market can never result in an uncompetitive scenario, because in such a free market, complete freedom of entry and exit exist. It is only when government steps in to artificially hinder some would-be entrepreneurs – or when these individuals are coerced by means of private aggression – that competition can possibly be restricted.

No Obstacles to Pure Entrepreneurship in a Free Market

            Pure entrepreneurship as Kirzner defines it requires no initial resource endowment on the entrepreneur’s part. This characterization makes possible Kirzner’s establishment of the necessary link between competition and entrepreneurship: “When we assert that purely entrepreneurial activity is always competitive, we are then asserting that with respect to purely entrepreneurial activity no possible obstacles to freedom of entry can exist” (Kirzner 1973, p. 99).

            There is one caveat to this statement, which Kirzner seems to recognize. Namely, if the government punishes entrepreneurs for exercising their alertness, then there exists an obvious barrier to entry to entrepreneurial activity. To recognize this, we need only consider the example of an egregiously totalitarian state which will execute anybody who voices an entrepreneurial idea – or even displays signs of possibly contemplating one. Entrepreneurs cannot have freedom of entry in such a situation, because any entrepreneur who tries to point out a pricing discrepancy or even thinks about one will be eliminated. In such a totalitarian state, only the rulers are allowed to exercise entrepreneurship. They establish barriers to entry for everybody else – hence protecting their entrepreneurship from competition. But in the absence of government coercion of entrepreneurs, freedom of entry can always exist – given Kirzner’s idea of pure entrepreneurship.

            Kirzner himself acknowledges the context in which his assertion of entrepreneurship as always competitive applies: “in the absence of government restrictions on given activities the only possible source of blockage of entry into a particular activity must arise from restricted access to the resources needed for that activity” (Kirzner 1973, p. 99). It is true that in an unfettered free market, access to some resources may be limited to some people. But if pure entrepreneurship requires no initial resource endowment, then this is not a problem, and entrepreneurship remains inherently competitive.

            But what happens when a certain entity has exclusive control over a certain stockpile of resources – thereby preventing anybody else from acquiring and selling these resources? Kirzner explains in an example: “If entry into orange-juice production is blocked, this cannot be ascribed to any absence of freedom to enter the activity of entrepreneurship; the source of blockage must be sought in the availability of oranges or other necessary inputs” (Kirzner 1973, p. 100). If one firm controls the entire existing supply of oranges, observers outside the firm can still notice inefficiencies in the production and pricing of the orange juice. It is conceivable that some of these alert individuals might offer their insights to the firm as private consultants – requesting in return a percentage of the profit the firm makes as a result of heeding the consultants’ advice. This would enable such individuals to still act as entrepreneurs in the orange juice market without owning or even purchasing any oranges themselves.

            Wherever pure entrepreneurship is possible and no government restrictions to entry or private aggression exist, such entrepreneurship is necessarily competitive. In the realm of policy, Kirzner’s theory implies that any and all antitrust regulations in the name of “protecting competition” are inherently futile and self-defeating, because they create artificial barriers to entry and interfere with a free-market system in which no such barriers exist.

Works Cited

Kirzner, Israel M. 1973. Competition and Entrepreneurship. University of Chicago Press.

G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, Le Quebecois Libre,  Rebirth of Reason, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, weekly columnist for GrasstopsUSA.com, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. Mr. Stolyarov also publishes his articles on Helium.com and Associated Content to assist the spread of rational ideas. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. His most recent play is Implied Consent. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.

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