Business planning with the Austrian economy: market process


Market processes are far more complex than the simplified models taught by economics or business courses, but an understanding of market processes is crucial to seizing new profit opportunities, as well as protecting your current income from competitors.

(This article is part of a series on business planning with the Austrian economy that includes articles on subjective value, methodological individualism, spontaneous order, and marginal analysis.)

The key element of the market process can be illustrated with a simple economics lesson. In an introductory course, students learn that the intersection of the supply and demand lines indicates the equilibrium price and the quantity produced. Austrian economists note that general education does not explain how prices reach the equilibrium level. My old Samuelson textbook says that if the initial price is too low, “greedy buyers’ auctions” will put upward pressure on the price. We see enthusiastic auctions from buyers in a few auction markets, but definitely not at Walmart or Amazon or my local plumber. If the initial price of the goods or services for sale is too low, say Austrian economists, then a person must perceive that a mistake has been made. This person should analyze the range of actions that could possibly be taken to find the one that most improves their situation. For Austrian economists, this is the essence of the market process. It is not that prices tend to approach equilibrium; it is that someone is deliberately looking for opportunities and then taking action to improve the situation.

Israel Kirzer explains that some people have “their eyes and ears open to the opportunities that lie ahead. equilibrium price.

Entrepreneurs are continually on the lookout for new opportunities. Maybe a store could sell everything for a dollar. Maybe a speaker / microphone combination connected to an artificial intelligence system would sell. Perhaps a self-contained vacuum cleaner would tickle homeowners’ desires.

At the microscopic level, we see companies focusing on a new approach to serving customers. Looking back to a macroscopic view, we see thousands of experiments being carried out in many different directions. Some will work, others will fail, but the economy as a whole comes to be driven by success. And these successful businesses will be challenged by the experiences of tomorrow.

Every business should systematically seek out new opportunities, as well as opportunities that competitors can see to rob their profits. High tech companies do this regularly, but even traditional companies have to do the exercise. It’s easy to focus on optimizing the current marketing plan or improving the current supply chain. But big disruptive changes cannot be ignored or underestimated.

Here’s a process to consider at your next planning meeting. Have your executives imagine they retired to a warm beach, got a little bored, and then were approached by another company with the question: How could we get into the industry you just left? ?

Imagine a request from a robotics company. Imagine a request from a cloud computing company. Imagine a third world sweatshop factory, a 3D printing company, a local mom-and-pop entrepreneur, a part-time worker looking for flexible hours. Analyze the business horizon for a wide variety of business types and knowledge bases. Imagine how other business approaches could be applied to your industry. You will soon develop a list of threats to your business and opportunities for bigger profits. And when you’re done, give a toast to Ludwig von Mises, the great Austrian economist.


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