The Concept of Competition and the Objectives of Competitors

1. Objectives of competition
Three important points to keep in mind when thinking about the objectives of competition are:
x
underlying variable of competition (price, quantity, quality etc.);
x
aimed level of achievement; and
x
competitive process that is at least partly determined by the strategic objectives of agents.
The importance of variables for analysis have deep roots in economic literature beginning with Cournot (1838) 
and Bertrand (1883). As described in Fudenberg and Tirole (1996) the topic has important place in game theory. The 
variety of results that have been achieved in models based on dual variables of price and quantity shows the 
possibility of almost infinite number of outcomes of competitive process with varying objective variables in real 
world. 
Neoclassical rationality with optimizing and maximizing agents is in practice possible only in cases of fairly 
certain economic environment when only few variables have to be taken into account. Otherwise, bounded 
rationality is better way to describe the decision-making and its outcomes (Fig. 1). In connection with organizational 
learning one can start the journey of bounded rationality from Simon (1991). The idea of bounded rationality may be 
considered to be a bridge from neoclassical competition paradigm to the Austrian economics (see Hayek, 1996 and 
Kirzner, 1978) and to business practice where the most prominent writer seems to be Porter (2004, 2004, 2008).

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 Enn Listra / Procedia - Social and Behavioral Sciences 213 ( 2015 ) 25 – 30 
As an extreme case of the static firm and its managers they may see himself as victims of the environment 
opposed to another extreme case of “the creators” of the world. Four different types of competing firms can be 
distinguished based on that dimension:
x
internally and externally static firm;
x
firms with ability to adapt without changing himself;
x
firms with ability to react improving himself and capabilities;
x
firms with ability to influence competitive environment by and for higher efficiency.
Fig. 1. Competitors and their objectives
Two extreme situations of competitiveness are described with the lines on the Fig. 1 denoting minimum 
sustainable and maximum achievable levels of outcome. The first is not clearly determined (it is always possible to 
do better), yet in most cases when people speak or write about competition they keep in mind striving towards this 
extreme point achievable only in neoclassical economics (see for example Tirole, 1988). In reality of bounded 
rationality the competitors are only on their way towards it and the aim determines only the direction, not the 
endpoint. One of very few, who define the competitiveness through the level of minimum sustainability, is Krugman 
(1994, 1996).
Competition brings about many different outcomes that have been object of research for long time. Mostly it is
assumed (at least implicitly) that the competition is of the first type and then it creates for example innovation 
(Aghion, 2002 and Richardson, 1996). However, when the markets were of the second type, these results would be 
unachievable.