In The Meaning of Competition, economist Friedrich Hayek questioned an assumption of so-called perfect competition-that all products are identical. He wrote that the goal of all business people is to make their products differ from those of their competitors. How does this relate to Schumpeter's thoughts on the textbook emphasis of pushing price down to average cost?
A) Competition is about innovation.
B) Prices often stay above average cost.
C) Competition focuses on making the most out of opportunity costs.
D) Firms focus on constraining entry.

Question

Quizplus · Accepted Answer

Hayek and Schumpeter both emphasized the importance of innovation in competition. Hayek argued that businesses strive to differentiate their products from their competitors, while Schumpeter emphasized the importance of innovation in disrupting existing markets and creating new ones. This suggests that the focus of competition is not simply on pushing prices down to average cost, but on creating new and better products that can command a premium price.

In the Meaning of Competition, Economist Friedrich Hayek Questioned an Assumption