5 A Review of Austrian Economics as a Marketing Theory

The following section will critically evaluate the assumptions of Austrian economics in regard to its applicability for marketing theory and it will apply the criteria from the philosophy of science found in chapter three to the hypotheses of section 4.3 (p. 31) to assess the epistemological qualities of Austrian economics.

(1) Methodologicl individualism:

On the one hand, the assumption that all social phenomena must be traced to individual decisions is certainly true. It is the people in a company and not the company as such who make decisions. The assumption of methodological individualism is congruent with marketing as far as the buyers of goods or services are individuals or at least a rather small group of interacting individuals. On the other hand, the idea of methodological individualism of always examining the roots of everything, like companies or nations, makes the analysis of their behaviour very complex and difficult. Only a minority point of view in Austrian economics claims that individual actions can be meaningfully aggregated. It is impossible to explain the continuous employment of empirical research and statistics in marketing with the view of the majority of scholars in Austrian economics. For them, market research is just speculation. The [Seite 33↓]success of companies or research departments specialised in market research tells a different story. Historical data is obviously valuable in predicting and planning future marketing strategies.

(2) (Radical) Subjectivism:

The assumption of subjectivism is the major difference between Austrian economics and neoclassicism and it is a necessary prerequisite for the existence and purposefulness of marketing. Marketing would indeed lose its justification if it could not exploit human subjectivity. The perceived value of goods can be influenced by marketing via its set of tools and instruments. This change would be unthinkable given the neoclassic assumption of perfect knowledge, but is possible given the more realistic assumptions about human decision making in Austrian economics. If all goods in a marketplace had an objective value, all exchanges would either stop or at least create no extra-value for anybody, because an equal amount of goods or money would be traded in exchange for the good. The assumption of subjectivism in Austrian economics gives the theory a foundation that is similar to the properties of real human beings.

There have been long arguments about the choice between subjectivism and radical subjectivism. Empirically, there is a tendency toward equilibrium in markets.²⁷² This evidence supports the Kirznerian point of view, although these tendencies might just be confined to submarkets. Since marketing is not interested in gaining implications for the whole economic system but rather for submarkets, the Kirzner’s school of simple subjectivism can be supported while there is no need to explicitly refuse the Lachmann/Shackle school of radical subjectivism

(3) Individuals and their will to change and create:

The homo agens of Austrian economics is based on common assumptions found in human condition and is thus expected to be universally true. It is hard to deny the Austrian a priori claim that human action, individual differences, and the will to change and create are given in all market actors. People had different endowments with knowledge, resources and capabilities in the past, they presently have different endowments and these conditions will prevail in the future without exogenous change. The will to change and create is expressed in every man’s actions, starting with instinctive acts like breathing or more complex acts like thinking and man’s de[Seite 34↓]sire to improve his situation. Even though the properties of the hypothesized homo agens are more realistical than those of the neoclassical homo oeconomicus, he is still only a condensed version of man. In Austrian economics, the ultimate reason for all action is man’s desire to enhance his situation. Man is able to choose his set of ends and apply known and appropriate means to it, but since Mises intentionally delimits praxeology from psychology,²⁷³ Austrian economics does not say anything about the internal processes of forming desires. While this view of man is suitable for the economic analysis of the interplay of market actors and exchange on an abstract level, in-depth attitudinal and motivational studies of human behaviour remain an important tool in marketing. Thus psychological theories that study the forming of ends are necessary supplements to Austrian economics in marketing theory. They start describing, explaining, and predicting human behaviour where Austrian economics stops.

(4) The influence of space and time:

Like all theories, Austrian economics strives for a high reliability across space and time. The influence of space and time is also one of the core assumptions of Austrian economics and occupies a prominent place in the theory. The market process necessarily takes place in a multi-period framework. During the course of time experience, learning, and the alteration of plans occur. In regard to this, reliability across space and time has to be a constituting quality of Austrian economics and is claimed to be valid in Austrian economics because of the fundamental, everlastingly true assumptions about humans and their actions.²⁷⁴ If the theory was reliable only at a given point in time, the market process could not unfold its coordinating powers. The whole theory about the process of market coordination through information would contradict itself and become meaningless. Reliability across space is very important, too. A general marketing theory needs ubiquitous value for marketing phenomena. The existence of marketplaces in ancient Greece that made intensive exchange possible shows that market processes not only take place around the world today but took place in bygone millennia in many places, too. Equilibrating tendencies in market processes are applicable for barter economies, as well. We can assume that market processes happen always and everywhere, where people engage in exchange in competitive markets, i.e. given more than one buyer and seller and free market entry. Yet, the lat[Seite 35↓]ter condition puts constraints on its applicability. State legislation often restricts market entry to various degrees, be it through patents and trademarks or be it through taxes or tariffs for foreign products. Austrian economics probably works better for markets in developed nations, because the flow of information should be better. We can imagine that the market process will be slower in developing nations with slower spread of information.

(5) Radical ignorance and its influence on the market process:

There are some famous examples of the existence and resolution of radical ignorance. The saga goes that Archimedes surprisingly found a way to unmask a deceitful jeweller, who was suspected to have mixed cheap silver with expensive gold in King Hieron’s crown in ancient Sicily. While Archimedes slipped into a bathtub, the so-called ‘Archimedes’ principle’ struck him. It states that different materials have a different density, and thus different displacement of water. Similarly dependent on surprise were Isaac Newton’s initial thoughts about the force of gravity. While resting under an apple tree, he recognized an apple falling down to earth. This set off his quest to solve why items on earth fall downwards and why the moon does not do so.²⁷⁵ While Archimedes already thought about his problem, the answer came not by logical deduction or a planned process of research, but by chance to his alert mind. Newton’s case goes even further: until he was almost hit by an apple, nobody had thought about gravitation for millennia. There is obviously radical ignorance about an infinite number of things in our universe. But going beyond the idea of passive alertness, influencing the search for knowledge seems possible. There are conditions that foster the generation of knowledge, like money or networks of creative people. While the outcome of research is subject to radical ignorance, the knowledge about the potential to create new knowledge is not. The task of marketing is to resolute ignorance, be it radical or not. Again, the existence of ignorance is a necessary condition for marketing to be purposeful. Without perfect information, marketing has the opportunity to influence potential buyers to decide for possibility A instead of B.

We can regard the assumptions of Austrian economics as quite realistically and thus useful for a field like marketing that tries to find ways to influence the decisions of real people. Two caveats are in order: firstly, the assumption of methodological individualism is responsible for high complexity of the analysis of social wholes. Sec[Seite 36↓]ondly, the assumptions about subjectivity and the actors’ will to change and create can immunize Austrian theory against empirical testing. The latter point will be treated in more detail below (see section 5.1.2 below).

This section deals with an assessment of the hypotheses that can be derived from Austrian economics, as introduced in section 4.3 (pp. 30f.). The first concern is the universality and conditionality of Austrian economics. We initially regard H4 as an example. The hypothesis is perfectly compatible with Austrian economics. It was shown before that alert entrepreneurs perceive signals of disequilibrium, especially price-signals. The ‘if-component’ of H4 could be altered to H4.1: “If opportunities for intertemporal arbitrage exist, then alert entrepreneurs will appear to exploit this opportunity”, which is also perfectly compatible with Austrian economics, but less universal. Even less universal would be hypothesis H4.11: “If opportunities for intertemporal arbitrage in the market for pig-bellies exist, then alert entrepreneurs will appear to exploit this opportunity”. The larger the content of the ‘if-component’, the smaller will be the hypotheses’ universality. It is impossible to measure universality on a cardinal scale, but it is feasible to subsume various phenomena that can be recognized in markets under the hypotheses of Austrian economics. The concepts ‘incomplete information’, ‘markets’, ‘opportunities’ or ‘alert entrepreneurs’ etc may be further specified and filled with content by the researcher. Thus, the lack of a formalised theoretical body is strength and weakness at the same time. On the one hand, it offers the chance to generate a broad range of hypotheses about various aspects of markets, including marketing. On the other hand such a lack of formalisation contains the danger of arbitrariness. The pretext of Austrian economics is quite unspecific, so a guiding hand in the generation of hypothesis would be helpful to keep in mind the core of Austrianism. There is also a lack of mathematical formulae to express the Austrian model. On the one hand Austrian economics seems straightforward and simple in relation to neoclassicism, because no complicated formal language is needed to explain the mechanics and implications of the theory. Some Austrians even regard mathematical models as exercises in pure logic that offer no new insights because of [Seite 37↓]their self-evident propositions.²⁷⁶ On the other hand such a formalisation could clarify statements that otherwise need exhaustive explanation.

The broad and universal character of the ‘if-component’ in the basic hypotheses implies a high likelihood of the ‘then-component’. The more conditions are connected to the ‘if-component’ (H4.1, H4.11), the more unlikely will the actual occurrence of the ‘then-component’ become. Now we see if the precision of the given hypotheses could be enhanced, e.g. to H4.12: “If opportunities for arbitrage exist, then alert entrepreneurs will appear within a week on all relevant markets to exploit this opportunity.” Due to the assumptions of Austrian economics, such a limitation is impossible. It is e.g. the existence of radical ignorance that forbids objective knowledge about time and place of the occurrence of an opportunity. A market actor is either alert to the existing profit opportunity and exploits it instantaneously, or he is not alert enough and does not recognize the chance, at all. The assumption of subjectivity prohibits more precise statements on how prices affect individual decisions in case of H1. Similar to H4 are the ‘then-components’ of H2 and H3 suffering from ex ante ignorance. We know that under ignorance the market will be in disequilibrium and that consequently opportunities exist, but there is no information about the degree of disequilibrium or the numbers and whereabouts of potential opportunities. Until those opportunities are alertly recognized, no accurate statements about their properties can be made. The same goes for H5. It is stated that information dissolves in the course of time, but nothing can be precisely said about the speed of this dissolution or the number and qualities of the imitators. H6 suffers from the assumptions of methodological individualism, independent will and action, and subjectivism. Experience and learning are very individual phenomena. There may be an average rate of learning and a tendency towards more and more correct decisions, but a statement about single cases seems impossible. While offering a clear implication, H7 cannot be put more precise, as well. Due to individual decisions the equilibrating tendency may be weaker or stronger, slower or faster. Now it should have become obvious that the ‘then-components’ of Austrian economics hypotheses’ offer only rather vague implications. Austrian economics offers a cause/effect-connection that allows to unambiguously describe and explain the path from disequilibrium to equilibrium through information and learning in a general way, but it is hard to dig deeper into detail. We know that a [Seite 38↓]state of disequilibrium will c.p. be resolved towards equilibrium if free market entry is possible, but not how long it will take and who will be involved when and in which way. Taken together, the high universality of the ‘if-components’ and the mediocre precision of the ‘then-component’ result in limited explanatory power of Austrian economics and limited empirical content.

The logical scope of H1 is that prices do inform; incompatible would be a misinforming, confusing or neutral role of prices. Compatible with hypothesis H2 is a state of disequilibrium, an equilibrium state is thus incompatible. H3 has the logical scope that arbitrage opportunities exist, while a lack of opportunities is incompatible. H4 has the logical scope that entrepreneurs will appear to profit from opportunities. Situations where no entrepreneurs appear are thus incompatible. H5 concerns the dissolution of information and appearance of imitation, which is its logical scope. If no information dissolves and no imitation happen, this is incompatible with H5. H6 postulates enhanced decision making. Worsened plans with respect to new information are incompatible. Finally, H7 is compatible with an equilibrating tendency, the notion of status quo or even disequilibrating tendencies is thus incompatible. The logical scope of the hypotheses put forward is always compatible with rather general phenomena, but nonetheless unambiguous. All hypotheses state a very clear implication. The fulfilment of the ‘if-component’ calls for a definite reaction. Due to its generality, the logical scope must be evaluated as being of a medium size, which calls for limited empirical content again.

While a combination of small logical scope and high empirical content is an important goal in theory construction, such hypotheses are particularly subject to the danger of falsification. The attempt to falsify hypotheses depends on the testability of hypotheses in reality through empirical studies. The superstructure of Austrianism, ‘methodological individualism’, which means consciousness, free will and independent individual decisions, has an important implication for the whole complex of scientific research based on it. Austrian economics derives all of its theoretical statements through introspection in order to interpret human action irrespectively of all environmental, accidental, and individual circum­stances.²⁷⁷ An important group in Austrian economics, consisting of inter alia Mises, Kirzner, Rizzo, and Rothbard, rejects em[Seite 39↓]pirical testing of Austrian hypotheses.²⁷⁸ As it is based on methodological individualism, it is claimed that the entirety of empirical findings picture exclusively historical facts that are valid for a singular case under the given circumstances at that particular place and time. It is denied that empirical findings have any validity for human action in general or for the future, because the complexity of human decisions forbids observation of all relevant facts. Their methodological approach is called ‘Aristotelian’. It sees science as a descriptive enterprise, as a matter of qualitative laws governing the connections between certain essences or categories.²⁷⁹ This anti-historicism has become the harshest criticism of Austrian economics.²⁸⁰ On the other hand, “[i]t is safe to say that no two Austrians have ever completely agreed on methodology […]”.²⁸¹ It is Hayek who defends a more moderate methodological ground within the Austrian school. Although he agrees with the scholars mentioned above on the belief that no singular outcome can be predicted and thus empirically tested, he claims that empirical methods are useable. They allow finding and predicting structures, patterns and abstract order in the market process.²⁸² Rizzo admits that statistical regularities are useful as a starting point for a theoretical investigation, insofar as they raise questions scientists could address themselves to.²⁸³ Until now, there is no known record of a falsification of Austrian economics. Unfortunately, this statement is troublesome. Theoreticians may construct hypotheses about market behaviour, e.g. about the equilibrating tendency, but two innate factors of Austrian economics are an obstacle to testing. If the postulated tendency towards equilibrium in a specified market is not found, the hypothesis or theory would normally be said to be falsified. In the Austrian framework, however, ad hoc explanations for contradictory findings are readily available. At first, there is the assumption about market actors who subjectively choose their ends in the market process. If natural or artificial barriers to entry into the market can be ruled out, there may have been a spontaneous and subjective change in preferences that disturbed the whole market process. The second possibility for unexpected findings in empirical research are radical ignorance that hindered entrepreneurs to find a profitable opportunity, or vice versa the resolution of ignorance that led to surprising innovations of entrepreneurs, which can always interfere with testing [Seite 40↓]and are thus an obstacle for the development of clear statements and predictions based on Austrian economics.²⁸⁴ The caveat that has to be mentioned is that the stated hypotheses are valid only c.p., i.e. if no unforeseen change disrupts the process that possibly makes it start all over again. Under the given assumptions and without the ceteris paribus clause, Austrian economics is immunized and not falsifiable in a Popperian sense anymore. In the social sciences, the deduction of hypotheses through introspection and logic does not justify untestability. Theories that immunize themselves are normally dismissed as sensible foundations of science. Marketing – and science in general – should not hide behind a theory that is not testable.²⁸⁵ Austrian economics, however, has had many critics during its history but was successfully defended by its adherents for over 130 years now and is as vital as never before. Empirical tests are carried out against the will and intentions of influential Austrian scholars, hoping to find support for general statements of Austrian economics. Even though the theory is immunized against contradictions, empirical findings based on Austrian theory are compatible with regular Austrian statements so far, without having to rely on ad hoc immunization strategies. Shane e.g., using the case-study-method, found empirical support for the hypothesis that entrepreneurs who differ in their initial resource and knowledge endowment will be alert to different possibilities to profit from a given technology. A particular entrepreneur is alert to profit opportunities that someone else does not see, because he possesses idiosyncratic knowledge.²⁸⁶ Zaheer and Zaheer conducted a study about profitability in the international banking sector. They found out that alertness to opportunities in disequilibrium exists, reveals profitable opportunities, and is an important factor in competition with other banks.²⁸⁷ Rese found explicative powers of Austrian economics for the behaviour of strategic groups in markets where high degrees of ignorance prevail.²⁸⁸ These findings are encouraging. Austrian theory seems to work at least in an environment in which no sudden major changes take place during the scrutinized period, but further elaboration would be helpful. It would also help to dismiss the dogmatic anti-historicism of Austrian economics and follow a Hayekian train of thought. It should be possible to assume that there are general, empirically testable patterns in the mar[Seite 41↓]ket process – or ultimately human behaviour – that are more or less stable over multiple periods on an average across a large population. If a sample of a hundred people is regarded today who like the colour red best, it can be surely predicted that the overwhelming majority will still like red best tomorrow. Learning based on experience is an empirical occupation. If empirical findings cannot be generalized because all observations are valid for a singular case only, systematic learning about advantageous opportunities in the marketplace and consequently the equilibrating tendencies of the market process become impossible. A buyer who finds an opportunity at a favourable price must always perceive it as a solitary opportunity, depending on the particular circumstances of time and place that may or may not be repeated at a later point in time or another place, if systematic learning is impossible. A seller is subject to the same uncertainty. An exchange partner who paid a favourable price may offer the same amount, a higher amount or a smaller amount under slightly different circumstances for the same good or service. Knowledge that was gained once cannot necessarily be assumed to be valid for the future. It follows that it is absolutely necessary that experience and knowledge gained today are at least roughly applicable to tomorrow’s situation; else all learning is a Sisyphean task. It is true that human beings in their complexity will be never understood completely. But it is also true that certain variables in human behaviour are quite stable over time or follow a rather evolutionary than revolutionary change. On these premises, generalizations and predictions about the future are possible. It would be helpful to find conditions that influence the occurrence of surprises and changes in preferences to support such generalizations and predictions. At the moment this seems utopian, but if such conditions were to be found and surprising changes could be isolated from the rest of the market process, the problem of immunization could be healed and hypotheses independent of unpredictable events could be constructed.²⁸⁹ Other interesting questions yet to be answered are the conditions under which entrepreneurial alertness is fostered,²⁹⁰ e.g. if companies as a conglomerate of knowledge have an ‘alertness advantage’ over individuals. Does alertness determine the optimal firm size?²⁹¹ Research and development departments in companies could be organized according to such findings. Furthermore, [Seite 42↓]conditions that influence the dissemination of information or other conditions that accelerate equilibrating tendencies are interesting for marketing. Marketing managers who plan to imitate a particular offer could use such knowledge in order to hasten their effort of imitation, while innovators²⁹² could, on the contrary, think of ways to prolong their monopolistic status in competition through slowing down the diffusion of knowledge.

Despite the aforementioned difficulties concerning the generality of Austrian hypothesizing and possibilities of ad-hoc immunization, there are reasons for accepting Austrian economics as a basis for hypothesis generation in marketing in the present state of the world. The difficulties should naturally be borne in mind until further research has resolved the problems and more evidence is found that supports Austrian economics. Until then the lack of testability puts up a problem concerning the truth of the theory. However, Austrian economics should be temporally accepted since hypotheses derived from Austrian economics offer an accurate picture of the equilibrating processes that take place and they could be verified in successful empirical trials so far. It was suggested in section 5.1.2 (pp. 34-40) that Austrian economics has only limited empirical content. Its strength and purpose is not to explain a singular event in the market, but it is a complete theory of the market process. In the field of economics and especially for marketing, Austrian economics is a novel theory. Admittedly, Austrian economics looks back on a long and changeable history, but the hypotheses stemming from its body of work were and are genuinely original in comparison to other existing theories. There is no other theory that regards market coordination as thorough a process as Austrian economics. It is not only valid at different places, but especially across time due to its emphasis on dynamic processes. Austrian economics allows the formulation of completely different implications, especially in comparison to its microeconomic competitor of neoclassicism. In regard to the triangle of the conflicting demands of truth, empirical content and novelty, there is a weakness on the ‘truth-edge’, and another one on the ‘empirical content-edge’ due to the limited precision of the hypothesis of Austrian economics, but a strong point on the ‘novelty-[Seite 43↓]edge’. The weaknesses, though, are not grave enough to call Austrian economics a ‘fantastic speculation’, ‘magic’ or ‘superstition’.

Now that the epistemological strength and weaknesses have been pointed out, potential applications of Austrian economics will be under scrutiny. Since Austrian economics was originally conceptualized as an economic theory and not as a marketing theory, the congruence of marketing and Austrian economics has to be established. Does the scope of Austrian economics overlap with that of marketing theory? Is the theoretical spotlight pointing on marketing phenomena? The first impression of Austrianism is highly valuable for marketing theory: profiting from economic activity is possible.

Since it is hard to draw the line between description and explanation, these two functions of a theory will be treated simultaneously. Austrian economics in its present state is directed towards thorough description.²⁹³ Starting from the phenomenon of a disequilibrium market the whole process that resolves the incompatibility of plans and expectations towards equilibrium is described. The description includes time, knowledge, entrepreneurs, etc. The applicability as a marketing theory will be tested by seeing if Austrian economics is able to account for Hunt’s four basic explananda for marketing theory (see section 2.1, p. 5).

(1) The behaviour of buyers directed at accomplishing exchanges:

Austrian economics and marketing share an important understanding: Individual buyers engage in exchanges of resources to be better off afterwards. Starting from a condition that could be described with the behaviouristic state of cognitive dissonance²⁹⁴ between the perception of the actual state and expectations about a preferable, imagined state, the individual engages in certain activities that are supposed to peak in an exchange. An exchange or a number of consecutive exchanges is the culmination of marketing activities. In the acts of buying and selling resources change ownership and profits can be realised. Both buyers and sellers are interested in exchanges, because their respective situation is supposed to be enhanced afterwards. The parties that en[Seite 44↓]gage in an exchange must fulfil the condition of offering the partner the best opportunity known and available. The element of time in Austrian economics explains why learning takes place in the period between the recognition of a problem, the exchange, and subsequent exchanges. The buyer has an amount of experience about goods and services that may solve his problem, and he may learn of other possibilities in the course of the market process. Since the ‘Austrian buyer’ has no perfect information, his evoked set is limited. He is alert to and consequently considers only a limited number of possible solutions. The decision process between different feasible outcomes is strictly subjective. Consumers are not exclusively sensitive to prices, but the recognition of the consumers’ economizing behaviour accounts for the fact that they choose the cheapest item from a set of homogeneous goods. Actors with constrained knowledge consider qualitative and other aspects of the offers as well, the result being a strictly subjective willingness to pay for goods and services.

The Austrian framework is also concerned with sudden changes in customer preferences. Changes are explained through the independent human mind that has its own will and power to choose goals. Excellent examples of sudden changes that affect business are found in the fashion- and toy-industries. A product, brand, label or designer that was very fashionable or a ‘must-have’ yesterday might be totally démodé today. Who remembers all the Tamagotchis, Teletubbies and Pokemons that no child could live without a few years ago, but which live in oblivion now? In the course of time, dependant on learning and experience, trends change and customers today might not be willing to pay a cent for something they placed a high value on yesterday. The view that Austrian economics has of market actors who engage in buying is close to actual behaviour. It accounts for many facets of human behaviour.

(2) The behaviour of sellers directed at accomplishing exchanges:

Two kinds of sellers must be distinguished in the Austrian framework. At first, there are sellers who are resource owners by natural endowment or earlier alertness. If they are not alert to opportunities because they suffer from too much ignorance or are simply not courageous enough to grasp an opportunity, they will not make a profit. This class of sellers is not very interesting for marketing. The interesting personification of a seller in Austrian economics is the second class of people, who Kirzner called entrepreneurs. It is the entrepreneur who generates a profit from buying and selling. It is justified to say that his qualities and his coordinating activities in markets that are [Seite 45↓]subject to ignorance are at the centre of Austrian economics. Entrepreneurs are driven by the search for profitable opportunities. Profitable opportunities vitally depend on customer desires and wishes, because it is the final user of a good or service who determines its price in affluent societies. The realization that it is the customer who decides about winners and losers in the market process puts Austrian economics very close to marketing. Successful entrepreneurial activity in the marketplace depends on fulfilling customer desires. A market segmentation that addresses market actors with different tastes and preferences is facilitated. Sellers have to produce the right product or service at a competitive price, make it known via informational means and have it sold at a place the buyer is willing to visit. Austrian economics thus describes and explains the employment of the four classical marketing-mix instruments (4 P’s). Austrian theory is a truly marketing-friendly theory because it integrates the costs for the creation of information into the manufacturing costs of the associated product.²⁹⁵

The entrepreneur in the Austrian framework as someone who is always alert to profitable opportunities is not necessarily restricted to exchanges of consumer goods or of commercial exchanges in general. The applicability or rather the descriptive and explanative powers of the Austrian entrepreneur in resource-markets or intermediate-good-markets are a matter of course. The addressees of the sellers’ marketing strategy are individuals in the end. Individuals in their function as employees of a company are not directly trying to subjectively maximize their own utility, but that of their respective companies, but as human beings they more or less show the same behaviour like consumers. Austrian economics is theoretically applicable for exchanges within organizations, if the internal organisation employs signals like artificial transfer-prices. If the transfer-prices have a correct value or are intentionally set to promote specific goals and are not misleading due to ignorance, they will unfold the same processes as in external markets with internal entrepreneurs driving prices to an equilibrium level. Several factories of a car-manufacturing enterprise could e.g. compete for the production of a new car. Within an organization, though, it is difficult to imagine that there are no rules prohibiting the free entry of all departments into all kinds of activities, e.g. of the marketing department into accounting, if they think that they can do it cheaper and better. It is also difficult to fully embrace the entrepreneur in non-profit organizations. Austrian economics states that human actors’ ends are not neces[Seite 46↓]sarily solely advanced by making profits or buying goods and services to fulfil a material need. Actors’ individuality accounts for people who feel better by helping other people, animals, the environment, or by enjoying religious feelings. Entrepreneurs (sellers) can create or shape charitable offers suited to customer (follower/worshipper) desires in order to maximize donations, but the idea of the informational role of prices and of the process of competition that drives down prices becomes irrelevant. Donations are voluntarily and hardly comparable to the price of a commercial good or service. It is hard to believe that a faithful Catholic switches to Protestantism because the expected donations are lower. The donator may be interested in an efficient use of his donations, but the amount (or price) he is willing to donate depends exclusively on other factors. It follows that Austrian economics is best applied for commercial exchanges.

Austrian economics permits that marketing takes time. Some measures of the marketing strategy are conducted simultaneous, but it is often a chronological process of planning, coordinating and executing. Marketing is also preparing the exchange transaction. Its role is to make potential buyers aware of the desirable features of a good or service. Potential buyers are actively working towards the exchange of resources after their indoctrination via marketing means. This notion is impossible in static theories. Sellers may conduct a certain strategy and measure its impact over time. Sales numbers and data are a constant test of hypotheses about the attractiveness of their offer. Significant changes in demand mean either that customer preferences changed or that new competitors appeared in the marketplace. Entrepreneur-marketers may compare their strategy to competing ones. They can learn from earlier mistakes and revise their strategy. This dynamic perception of time is also necessary to account for relationship marketing. Sellers can positively influence the subjective perception of buyers in earlier periods in order to gain an advantage in later periods, since transactions are not independent. Given perfect information and hence no transaction costs whatsoever, all buyers and sellers would engage only in independent transactions. In Austrian economics, relationships that reduce ignorance and insecurity are valuable.

(3) The institutional framework directed at accomplishing and/or facilitating exchanges:

Real institutions human beings created to accomplish and facilitate exchange are well explained in Austrian theory. The first one is the market. In a market, buyer and seller or demander and supplier meet in order to exchange their resources, which will expectedly make both better off afterwards. Markets may consist of two parties, if subjectivity predominates and the alertness of both parties is restricted. They may consist of multiple parties, if more than one seller made the potential buyers aware of his offer and/or if more than one buyer shows interest in the available means. Only here can the equilibrating powers of competition unfold. Nowadays markets sometimes consist of almost the entire world, because modern information technology like the internet offers new and cheap opportunities of communication between buyers and sellers. A market is thus not a fixed territorial place, but the variable result of informational activities on both sides of the buyer-seller dichotomy. The second institution, money, facilitates exchange by enhancing the signalling value of prices. A common denominator for all goods and services, like money, makes the comparison of prices much easier compared to a barter economy. With the term of ‘institution’ Hunt also refers to intermediaries in the market process, such as wholesalers, retailers and agents engaged in transportation, warehousing, advertising, or market research.²⁹⁶ The first two are entrepreneurs themselves. They take title in goods and alertly try to exploit opportunities to better fulfil customer desires for distribution. The other groups are auxiliary forces in the market process. They aid entrepreneurs to achieve an optimal marketing mix of information, time, place, product properties, and price. The fourth institution is the system of laws of a state and the property rights the laws protect. Both are not explicitly explained in the core of Austrian economics. They are exogenously given, but play an important role in securing free market entry and a voluntary and orderly exchange of resources. A totally free market entry is utopian in the present state of the world. Austrian competition is hindered through various laws, like patent legislation and bureaucratic obstacles. One country that switched from central planning of the economy to a system with freer market entry and private property rights is China. It is an example of the vast success of private entrepreneurship in facilitating exchanges. The move to economic liberalization started late in the year [Seite 48↓]1978 and resulted in “[…] two decades of sustained high economic growth rates of between 10 and 11 percent annually compounded”.²⁹⁷

(4) Consequences on society of the behaviour of the buyer, seller, and the institutional framework directed at accomplishing and/or facilitating exchanges:

Comparably free market entry and stable institutions have led to the development of economies in the Western hemisphere as we know them today. Private entrepreneurship that appreciated consumer sovereignty has resulted in our affluent society and has led to a vast number of choices from which consumers may satisfy their diversified needs. Sometimes the consumers’ power led to an availability of certain goods and services anytime and everywhere. Consumers in affluent societies are subject to a constant stream of information. Entrepreneurs try to alert consumers to their opportunity and convince them that their offer is the best. Mises stated in 1949 that advertising gets continuously shriller and displays the bad taste of the public (see section 4.2.3, p. 29). For someone living in the 21st century, advertising from the 1940s and 1950s appears reserved and boring, while present strategies of gaining attention indeed seem to have gotten more aggressive. This is e.g. reflected in the famous advertising campaign of Benetton in the 1990s, which showed the bloody garments of civil-war victims, a death-row inmate and people suffering from HIV. However, sometimes loud advertising campaigns do not work. The success of discount supermarkets shows that customers do not always perceive the subjective superior value of heavily advertised and branded products. The lower price of private brand goods is often preferred to the subjectively higher esteem of branded goods. Here we are in the mainstream of Austrian economics. It is possible to recognize price- and non-price-competition and to explain ex post how and why it occurs. It is impossible, though, to predict ex ante which one is more important in the decision process of market actors.

The economic phenomenon of the globalization of production with all its influences on society is connected to the competition for the lowest price. Austrian economics offers a perfect explanation for “[…] the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labour, energy, land, and capital). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offer, thereby allowing them to compete more effec[Seite 49↓]tively”.²⁹⁸ After the resolution of the conflict between the eastern communist bloc and the western democratic bloc various new opportunities arose. In many former Communist countries and in countries that were outside the western trade system the institutional framework changed towards a more liberal economic system, that is more closely connected to the west. On their eternal quest to offer attractive opportunities to the consumer – either through lower prices or better quality for their goods and services – alert entrepreneurs started to produce in reformed countries if labour was cheaper than in Western countries. Meanwhile, the production of various kinds of goods and services has moved from developed countries to developing countries, a movement that started with the production of labour-intensive goods and went on to software programming, accounting and tax calculations. A classic example is the production of colour-TV-sets, originally an innovation from the United States that was later imitated by entrepreneurs in Japan and Germany. Even later the production of TV-sets moved to South Korea, and nowadays to China. In the course of this movement, production costs were continuously sinking and consumer prices were sinking strongly as well compared to the average income of workers in the Western hemisphere. Prices for many goods could not be as cheap as they are, if it was not for entrepreneurs who saw those opportunities. Many entrepreneurs (or entrepreneurial companies) are selling very profitably, because they still have a temporary monopoly on differentiated goods and services or because they can produce more cheaply than their competitors. Some are alertly exploiting the differential between wages in the developed countries and developing countries. Textile workers in various Chinese factories e.g. got paid between $0.13 and $0.35 per hour for up to 93-hour working weeks in 1998, compared to $10 and $18.50 per hour in 1996 in the United States and Germany, respectively.²⁹⁹ Hayek’s insight that those will produce something who are able to craft it for the lowest price is verified. The market process may not yet have reached a state of equilibrium. Workers in Africa are potentially accepting even lower wages, but problems in regard to political and social stability and property rights hinder the exploitation of such opportunities. Another societal phenomenon is explicable: product piracy, i.e. the illegal imitation and selling of products. If laws are not enforced strongly enough, pirate-entrepreneurs perceive a chance to participate from the informational expenditures other entrepreneurs incurred.

Austrian economics has strong descriptive and explicative powers for all aspects of marketing theory. The first criterion of Hempel and Oppenheim (see section 3.3.1, p. 17) is fulfilled, too. It is possible to logically deduct a number of phenomena from Austrian economics. The law needed is given by the elaboration of Austrian economics based on its various assumptions. Empirical content and truth of Austrian economics have been evaluated before and found to be of a restricted degree. The demand of the independence of explanans and explanandum is, of course, problematic due to the immunization tendencies of Austrian economics.

The inherent complexity of human actors, the economic system and a lack of knowledge is problematic for the predictive qualities of Austrian economics. It is impossible to control the secondary conditions about human preferences and about the dissolution of radical ignorance, which is responsible for innovations. Kirkpatrick defends the point of view that Austrian economics is incapable of generating predictions about the future. He pragmatically suggests that marketing based on Austrian economics should use consumer psychology and extrapolations of market research data as auxiliary methods in order to gain speculative insight into the future.³⁰⁰ It is due to this weakness in prediction that Austrian economics could not take the position in economic and marketing science it deserves, if we take a look at its strong descriptive powers. The possibility of predicting general patterns of the market process is analogous to the hypotheses set up in section 4.3 (see pp. 31f.). If we accept the hypotheses H1 to H7 as law-like generalizations, we can deduct the following prognoses from a tautological transformation:

P1: Prices serve as a means of communicating information.

P2: Markets suffering from ignorance will be in disequilibrium.

P3: Opportunities for arbitrage exist in a market that is in disequilibrium.

P4: Alert entrepreneurs appear to exploit opportunities.

P5: Information about entrepreneurial activities spreads in the market in the course of time and attracts imitators.

P6: Experience and learning result in enhanced decision-making and plans that mutually fit better.

P7: An equilibrating tendency begins.

Using these predictions allows us to say that alert entrepreneurs will perceive price signals and try to find profit opportunities in disequilibrium markets (P1, P2, P3, P4). The assumptions of Austrian economics are unfortunately an obstacle to the control of the secondary conditions. Due to radical ignorance, the independent human mind and subjectivism we are not able to predict when the entrepreneurs will appear, how many there are, where to find the opportunities, and the value of the opportunities. Innovators can be successful – at least for a certain period of time – but they can also mistake consumer desires and incur losses. What we can surely say is that success in the market depends on the correct anticipation of customer needs and selling the accordingly designed item for a competitive price. The dissolution of information that will inevitably happen in the marketplace will sooner or later attract competition (P5). If the proliferation of goods and services continues it is possible to predict that advertisements will become even more shrill and noisy, given constant tastes and capabilities of consumers, because offers must be made known to customers. Learning and experience in the course of time will enhance the actors’ decisions and start an equilibrating market process (P6, P7). Entrepreneurs must be aware of imitators and be prepared to handle a continuous compulsion to innovate. Teece holds the caveat that, although Austrian economics predicts that innovative entrepreneurs are most successful, it is often an imitator who reaps the greatest benefits.³⁰¹ This notion is certainly true but can be explained because there is more to economic success than the right product: the right marketing-mix.

Austrian economics emphasises the superior transmission of information in markets, which results in better fulfilment of consumer needs as opposed to centralised planning, especially in Communist societies.³⁰² History showed that Austrians were right in the ‘socialist calculation debate’ with their claim that central planners do not have all the relevant knowledge to calculate equilibrium prices and provide consumers with an optimal amount of goods and services. Whereas institutions are accepted for [Seite 52↓]the functioning of the market process, government interventions are criticized, because they enhance the market process only by chance. Subjective governmental interference into the forces of the market process can never be superior to the vast amount of market knowledge and will thus cause only additional bias. The banning of tobacco advertising in cinemas and on TV in the European Union e.g. biases the market process in the relevant market. Differentiated or cheaper offers cannot be advertised effectively anymore and the flow of information is hindered. The overall effect on the abuse of tobacco products is dubious. An implication of this governmental intervention is the fact that the current position of incumbent tobacco products is fortified. The same criticism is true for interventions in other fields: Given a set of rules that secure property rights and free market exchange, it would be economically efficient to have as few interventions as possible. However, Austrian economics does not make normative statements about the moral and ethical value of interventions.

Austrian economics is often used to criticize neoclassicism on the ground of the more realistic assumptions of Austrianism. Neoclassicism does not account for any facet of marketing because of the assumption of perfect knowledge and actors who maximize given goals in the highly unrealistic state of perfect competition.³⁰³ In the neoclassic equilibrium framework all profits have been competed away and there are no profits to be reaped anymore. However, both schools have common understandings. Many Austrians regard equilibrium as the final stage of the coordination process in a distant future. It is a state in which all signals are correctly perceived in such a manner that all plans and decisions of market actors align. This is exactly the basic tenet of neoclassicism: complete information is crucial for equilibrium. Some ideas of neoclassicism could be integrated into the Austrian framework on this condition. Connected to the criticism of missing realism in neoclassic theory is the criticism of a school of strategy called ‘Industrial organisation’ (IO), which is based on neoclassicism. Austrian scholars claim that IO relies on an insufficient theoretical structure, is ignorant to change due to its static equilibrium thinking and does not explain entrepreneurial efforts to innovate.³⁰⁴ Profits do not depend on successful differentiation from competition but on the exertion of monopoly power.³⁰⁵ A consistency of another theory with Austrian economics does, in contrast to IO, exist. Hunt claims that the ‘Resource ad[Seite 53↓]vantage theory’ is consistent with Austrian economics and could provide the foundations for developing an Austrian theory of competition.³⁰⁶ A superficial comparison shows that there are common grounds of Austrian economics and NIE, since both are interested in the problems and effects of ignorance and the importance of information. Furthermore, psychological research could prove fruitful to elaborate on the market actors’ subjectivity and decision processes.³⁰⁷ Theories like the confirmation/disconfirmation-paradigm³⁰⁸ and the phenomenon of cognitive dissonance³⁰⁹ resemble and seem consistent with the problem-solving behaviour of the Austrian decider. Another potential for the integration of theoretical knowledge into Austrian economics is the Bass Model mentioned in section 2.2 (pp. 7f.). The diffusion of innovative products depends on the availability of knowledge about them. It is possible to perceive the Bass Model as the empirical proof for certain Austrian claims and it can be very well related to Austrian economics. Knowledge about offers, e.g. spread through advertising effort, alerts customers of a new and advantageous opportunity. Since the diffusion of information in a market grows over time, demand for such products rises. Later, new information will slowly but steadily overlap with old information after the introduction of the next innovation and deduct demand from the old offer, so that the overall demand for the old offer declines again.

The attempt to derive implications from Austrian economics to influence transaction processes confronts us again with the problems of immunization and unpredictability of single events. The missing property of unambiguous prediction of Austrian economics is consistent with the real world.³¹⁰ The outcome of marketing activities is uncertain and marketers speculate about future events, too. Since peoples’ preferences and tastes continuously change,³¹¹ most product innovations – even if they have been tried in a market test – do not succeed financially. Still, marketing activities are essential for the functioning of the market process. The marketing-task of the entrepreneur is to employ all tools of regular marketing-management to facilitate exchanges, be[Seite 54↓]cause certain conditions have to be fulfilled before an exchange takes place. Making use of the classical marketing-mix of product-quality, pricing policy, distribution and promotional activities is a clear implication of Austrian economics. All of these variables will influence transaction processes.

Meyer claims that the entrepreneurial role in Austrian economics is identical to market-oriented business leadership as understood in modern marketing.³¹² The picture of marketing that was put forward in the three definitions by Meffert, the AMA, and Kotler/Bliemel (see section 2.1, p. 3) has as well striking similarities with the Austrian entrepreneur. Austrian theorists and marketing theorists share the common understanding that customer satisfaction is a necessity for successful exchanges. Both entrepreneur and the manager of the marketing function want to generate exchanges of resources. If either the entrepreneur or the marketing-manager mistakes or ignores the primacy of the consumer, he will not sell enough and be driven out of the market. There is also an empirical difference between the Austrian entrepreneur and the marketing-manager. Many people occupied with marketing do not work independently. The stereotypical marketing-manager is an employee of a big consumer-goods company. Questions arise if these managers are not alert enough to work on their own account or which advantages they enjoy within an organization.

The market actors’ economizing behaviour suggests that the first instrument of the classical marketing mix, price, is the crucial sales argument for homogeneous goods. Buyers will choose the least expensive out of a number of identical offers. Price signals that are statements about a shortage or an excess supply of goods or services and information that is available in the marketplace must be correctly perceived, processed and evaluated. Marketing-managers can find out if a competitor reaps profits with his offer, if signals are correctly perceived and interpreted. The sellers will take the chance to imitate a successful idea of competing entrepreneurs whenever and wherever possible in order to participate from profits. Various sellers who sell a homogeneous good have to compete on price until all profit opportunities have disappeared. Being successful in such an environment implies being the seller with the lowest price. This implies an essential informational task for all market participants, [Seite 55↓]but especially for the marketing-manager or the entrepreneur. All producers of homogeneous goods or services, whether it is the original inventor or an imitator, have to be alert to superior production techniques to fabricate cheaper than competition. To employ the most advanced or cheapest production technique is the only way that sellers can stay ahead of competition in a market for homogeneous goods. This implies e.g. that the globalization of production and the movement of production sites to developing countries needs to and will continue. We can expect the end of that movement in a distant future, if all wages for workers who have the same skills in producing a good or service have been equalized on the whole planet (given free market entry). The customers will profit from the search for better production techniques due to increased supplies at cheaper prices because of lower production costs. Marketing-driven companies will move the relevant markets toward equilibrium, but the final resolution of disequilibrium towards the neoclassic idea of market clearance seems to be an empirical exception.³¹³ An implication of using prices in terms of money instead of cows, bushels of wheat and pieces of pottery in a barter-economy, or enhanced spreading of information in general, is that competition will c.p. be fiercer and the equilibrating processes will be faster on average.

The most important insight of Austrian economics that is relevant to marketing is that the customer is the most powerful actor in the market process and the centrepiece of entrepreneurial endeavour. Transactions take place only if the customer perceives additional benefit compared to a competing solution or to no exchange at all. This is good news for consumers, because entrepreneurs need to do, produce, and sell almost everything that fulfils consumers’ desires and needs. Entrepreneurs must be aware that they can only be profitable, if they are committed to constant alertness and consumer service. The second marketing-mix instrument is thus product quality. The differentiation of product qualities is the only way of escaping from fierce price-competition and being profitable.

Market actors seem to have an infinite desire for new and differentiated products to fulfil their individual needs. Sometimes customers formulate such desires, but often their radical ignorance hinders them to think of things that do not yet exist. Active [Seite 56↓]and passive search for solutions to customer problems both buyers and sellers are still ignorant about is necessary to outpace competitors. Austrian economics claims that entrepreneurs must be sensitive to such explicit or implicit requests since differentiation allows profits to be reaped at least for a limited period because of the monopolistic position. Both the entrepreneur and/or the marketing-manager are forced to accept losses as well as profits in this attempt. They are subject to the same constraints on human rationality (subjectivism, ignorance) like potential buyers. As human beings their decisions are sometimes right and sometimes wrong, since the future is unknown. A mistaken perception of market information causes losses. Entrepreneurs whose success is below average will be forced to leave the market sooner or later. Resources will flow toward entrepreneurs who correctly perceive consumers’ desires and only those entrepreneurs who push the market process towards a higher equilibrium will survive in the market process.³¹⁴ The people who are currently working in the field of marketing are successful enough in the fulfilment of consumer desires to keep the majority of the world population from entering into entrepreneurial activities.

Another implication of Austrian economics is that the longer the period of monopolistic power in a market, the larger will be the profit of the monopolist. Thus, trying to prolong the duration of a monopoly is an important goal for marketing in the market process. A recommendation that is incompatible with the ideals of Austrianism for keeping a monopolistic position could be to lobby lawmakers to prohibit entry of competitors into the market in question. Austrian economics accepts monopolies, as long as they stem from competition and free market entry is possible. The competitive way for entrepreneurs to stay ahead of competition is to find or develop a resource or skill crucial for production that cannot be easily imitated. This may be the sole access to a natural resource like oil or gold, or it may be the access to the human resources of people with unique skills or non-transferable knowledge, or knowing a formula like the secret recipe of Coca Cola, or owning the property rights of a patent that prohibits the imitation of something particular. None of these possibilities promises profits forever, though. An oil well may run dry, or a gold mine may be exhausted. A human being may lose his unique skills or knowledge, a secret formula can be stolen and copied and a patent expires after a certain period of time. Furthermore, tastes, prefer[Seite 57↓]ences and technology change. These inevitable changes imply an infinite number of disequilibria, which is equal to a constant stream of profit opportunities on the one hand, but on the other hand the goods and services under protection may not be sought after anymore, which implies that flexibility and constant openness to change and innovation are crucial for success in the marketplace.

Current consumer criticism claiming that conformity of style and taste etc (see section 2.3, p. 9) are the result of mass-marketing is supposed to be resolved in Austrian theory, as long as a further differentiation of those items is profitable. Global branding and global uniformity of product- and service-offers is limited by the will of consumers to accept and pay for those goods and services. It is the homogeneous preference of the consumers for the food of McDonald’s that makes McDonald’s sell the same food on a global scale. If everybody is free to choose, the reproach to marketing as being the source of uniformity is inappropriate, because the customer is the source of uniformity. Customers with similar preferences will thus compel entrepreneurs to sell homogeneous products. National, regional and rarely even individual differences in taste make the market process find another, more differentiated solution to customers’ problems, if the entrepreneur can gain profit in fulfilling more diverse desires. The degree of individualization of transaction processes that is still profitable will be found out in the course of the market process, because a trade-off between increased differentiation on the one hand and increased production costs (like a lack of economies of scale, reduced effects of learning, increased informational desires) on the other hand will prevail. Learning and gaining experience does not only take place in regard to the product, but the distribution and communication strategy are affected, as well. Different customers respond to different informational means and are aware of goods and services at different locations.

Entrepreneurs or marketing-managers in the market process do not only perceive information to find out about opportunities and set prices, but they must employ an active means of influencing the market process on their own: deliberately sending information to alert the buyers about existing opportunities, because exchanges can only take place if the two potential parties to the exchange know of each other’s offer. Kirzner claims that the owner of a gas station must not simply offer gas. If nobody recognizes the gas-station, not a single gallon of gas will be sold. His task is “[…] to [Seite 58↓]supply gas-which-is-known-about […]”.³¹⁵ Even if an opportunity has an advantageous price or superior qualities, the ignorant buyer will not select it because of his radical ignorance. To resolve this ignorance, the third instrument of the marketing-mix – the advertising or, more generally, the communication strategy – is used. It is explicitly mentioned in Austrian economics, especially in the works of Mises and Kirzner. It is an important means of spreading information in the market process, apart from price signals. Communication about products and their particular advantages is responsible for the broad range of choices consumers enjoy today. It is necessary to make consumers aware of the diverse possibilities to relieve perceived problems; sometimes advertising has to awaken feelings of uneasiness which encourage the consumer to search for a solution towards his problem.

Austrian marketing-managers can make use of the communication- and distribution-strategy to convince customers of the advantages of their particular offers besides offering a product that fulfils a customer need at a competitive price. Human actors’ property of subjectivism implies that advertising can influence the subjective perception of value. Marketing can alter human actors’ tastes and preferences in a desired direction. Thus it is not absolutely necessary to offer the objectively best opportunity in a market. It is enough to have the subjectively best one. Modern marketing can and often does transcend the objective value of a product by emphasising subjective qualities like ‘image’ or ‘spirit’. Some consumers endorse the image a brand or good represents through buying the good in question. Their willingness to pay for such a good is often much higher than for a good that does not contain value that was added by communicative means. Some designer-labels for clothes e.g. add that much extra-value through information to their products that they are able to exploit consumers’ subjectivism. These companies can charge the multiple amount of money for the same basic good such as a jeans or T-shirt in comparison to another competitor who is not that much involved in heavy advertising or who is not as successful with his communicative strategy.

The chances of engaging in an exchange are subject to the amount of information both parties possess. If someone objectively has the best offer available but is unknown to potential partners, he will not succeed in the market process. The potential market for a certain offer is enlarged through the information of customers. In a world [Seite 59↓]of overstimulation only the loud voices will be heard. Put differently, the more people know about an offer, the bigger will the potential market for this offer be. A change of price is c.p. not the only possibility to reach more customers. A market is independently enlarged in Austrian economics by reaching new customers via information. Recent developments in information technology like the World Wide Web have opened many new opportunities to reach customers in almost all parts of the world. Auction platforms in the internet, like eBay, make use of these enhanced informational capabilities to bring together buyers and sellers from all continents. The importance of problems referring to the quality of the product, the buyer, and the seller may rise in the virtual marketplace compared to a face-to-face exchange but the transparency of the pricing mechanism and the size of the market, which is potentially only limited to the number of the human population are important advantages that enhance market processes. Even though exchanges are dyadic, both buyers and sellers need to pay attention to competitive offers and bidders. It is advantageous for both sides of the exchange to know of a relevant market that is as large as possible, because then it is possible to compare and evaluate different offers. Competitive bidders are, like the buyer and seller, in a constant process of learning to offer and accept better opportunities than before.

A seller who at least once engaged in an exchange with a buyer has a certain informational advantage. The buyer is not radically ignorant about the categories or types of product- and service-offers of the seller anymore. It is easier to inform a person who is already aware of the company about related and follow-up offers. An initial exchange can thus become the starting-point for a number of exchanges. Yet, the occurrence of experience and learning can take a turn for the worse for the position of the exchange partner in a subsequent period, if the initial exchange was unsatisfactory for one or both sides.

Finally, the fourth instrument – the distribution strategy – has only a small place in Austrian economics. The marketing-manager needs to care for a good distributional strategy, because a need-satisfying product must not only be known to the addressee, but it must also be readily available. A consumer who is alert to an offer but does not know where to satisfy his demand may be reluctant to invest too many resources in the reduction of his ignorance about this product feature. The market process forces [Seite 60↓]the seller to secure a distribution strategy that makes his offers available at all places where it is worthwhile. Some products may be valuable only in particular places; e.g. the market chances for air conditioning will be larger in Florida than in Norway, but things like clothes and food are valuable almost anywhere where human population is found.

Fußnoten und Endnoten

²⁷² Cf. Meyer (1997), p. 72.

²⁷³ Cf. Mises (1949), p. 12.

²⁷⁴ Cf. Littlechild (1978), p. 25.

²⁷⁵ Cf. Bethell (1987), pp. 6f; 17f.

²⁷⁶ Cf. Hayek (1937), p. 35; Paqué (1985), p. 426; Yeager (1997), pp. 155f.; Mayer (1998), p. 154.

²⁷⁷ Cf. Kirkpatrick (1983), p. 44.

²⁷⁸ Cf. Mises (1949), pp. 30-32; Kirzner (1976), p. 43; Rizzo (1978), p. 53; Rothbard (1976), p. 28.

²⁷⁹ Cf. Smith (1994), p. 33.

²⁸⁰ Cf. Rese (2000), p. 216; Rosen (1997), pp. 147f.; Reekie/Savitt (1982), p. 62.

²⁸¹ Littlechild (1978), p. 22.

²⁸² Cf. Hayek (1994), p. 251; Hayek (1964), pp. 338; 343.

²⁸³ Cf. Rizzo (1978), p. 52.

²⁸⁴ Cf. Rese (2000), p. 215.

²⁸⁵ Cf. Bagozzi (1984), p. 27.

²⁸⁶ Cf. Shane (2000), p. 449.

²⁸⁷ Cf. Zaheer/Zaheer (1997).

²⁸⁸ Cf. Rese (2000).

²⁸⁹ Cf. Rese (2000), p. 216.

²⁹⁰ Cf. Ricketts (1992), p. 82.

²⁹¹ Ioannides attempts to explain the emergence of companies within Austrian Economics as the product of interpersonal efficiency in the competitive market process. The maintenance of the company depends on constant entrepreneurial success. Cf. Ioannides (1999), pp. 85-95.

²⁹² Innovators are those entrepreneurs or firms that are the first to commercialize a new product or process in the market. Cf. Teece (1987), p. 185.

²⁹³ Cf. Fritz (1990), p. 496; Rese (2000), p. 215.

²⁹⁴ Cf. Homburg/Bruhn (2000), p. 14.

²⁹⁵ Cf. Kirzner (1973), pp. 145f.

²⁹⁶ Cf. Hunt (1983), p. 14.

²⁹⁷ Hill (2003), p. 208.

²⁹⁸ Hill (2003), p. 7.

²⁹⁹ Cf. Klein (2000), pp. 212; 474.

³⁰⁰ Cf. Kirkpatrick (1983), p. 48.

³⁰¹ Cf. Teece (1987), p. 185.

³⁰² Cf. Prychitko (1994b), p. 226.

³⁰³ Cf. Block/Barnett II/Wood (2002), pp. 51f.

³⁰⁴ Cf. Jacobson (1992), pp. 783-785.

³⁰⁵ Cf. Bain (1951), pp. 294f.

³⁰⁶ Cf. Hunt (2002), p. 249.

³⁰⁷ Cf. Albert (1988), p. 598.

³⁰⁸ Cf. Giering (2000), p. 8.

³⁰⁹ Cf. Homburg/Bruhn (2000), p. 14.

³¹⁰ Cf. Mises (1949), p. 106.

³¹¹ Cf. Reekie/Savitt (1982), p. 57.

³¹² Cf. Meyer (1997), p. 67; cf. also Kirkpatrick (1983), p. 49.

³¹³ Cf. Reekie/Savitt (1982), p. 55.

³¹⁴ Cf. Jacobson (1992), p. 788.

³¹⁵ Kirzner (1972).