Entrepreneurial discovery
Sharon A. Alvarez and Jay B. Barney
Entrepreneurial alertness is the ability that some people have to recognize market imperfections that have the potential for generating economic profits (see entrepreneurial alertness). Entrepreneurial discovery is concerned with the actions people take to exploit the competitive imperfections they see in the market.
At the point that an individual experiences entrepreneurial alertness, the actions that need to be taken to exploit a market imperfection are only known imperfectly. As individuals begin to take actions designed to exploit an imperfection, they discover those actions that enable this ex ploitation and those that do not enable this exploitation. Thus, this series of actions, where individuals learn what must be done to exploit a market imperfection, can appropriately be called entrepreneurial discovery.
The concept of entrepreneurial discovery was originally developed by Hayek (1948) and Mises (1949) in response to perfect information as sumptions in neoclassical economics. In neoclas sical theory, all relevant information about technologies, demand, and other determinants of market competition are known to be available, but may be costly to produce. The concept of entrepreneurial discovery suggests that the actions that need to be taken to exploit imperfect competition are not knowable a priori and must be discovered over time through efforts to ex ploit these imperfections.
However, the act of learning what actions need to be taken to exploit a market imperfection often has the effect of informing others in the market of the existence of this imperfection. Thus, while alert entrepreneurs may be able to keep their recognition of a market imperfection – and the profit opportunities associated with that imperfection – proprietary, the act of trying to exploit these imperfections through entrepren eurial discovery often informs others about this opportunity.
The work of Hayek, Mises, and Kirzner are all examples of what has come to be called Austrian economics (see austrian economics). How ever, while traditional Austrians abandoned all notions of equilibrium in their analysis, modern Austrians – starting with Hayek and Mises, and continuing with Kirzner – include some equilib rium notions in their analysis.
Entrepreneurial discovery is the process by which market imperfections are exploited. Future research might be conducted in order to determine if some processes are more effective at exploiting market imperfections than others and, if so, how those attempting to exploit these op portunities know how to chose the most desir able/effective process.
Bibliography
Hayek, F. A. von (1948). Individualism and Economic Order. London: Routledge and Kegan Paul.
Kirzner, I. M. (1989). Discovery, Capitalism, and Distributive Justice. Oxford: Blackwell.
Mises, Ludwig von (1949). Human Action. New Haven, CT: Yale University Press.