The Concept of Competition and the Objectives of Competitors

Abstract

The aim of the conceptual paper is to deal with the different meanings of competition, to systemize the versions of concepts of competition arranging these in the same unifying framework, called in this paper the field of competition, and developed in this paper. The unified concept of competition is developed showing of how its meaning depends on the objective(s) of the agents in competitive process. It can be used as the modelling device for analysis. Competition and competitiveness are the terms frequently used both in business and public discussion about the economic units, and about their ability to perform according to the strategic or policy goals. However, the meaning of the terms remain vague and to make things even more complicated, the exact meaning depends on the problem under hand. The paper contributes to the discussion on the meaning of competition and presents a model that may be used to interpret the use of concept. It also gives possibility to resolve some of contradictions between different approaches.

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Procedia - Social and Behavioral Sciences 213 ( 2015 ) 25 – 30
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1877-0428 © 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of Kaunas University of Technology, School of Economics and Business
doi: 10.1016/j.sbspro.2015.11.398
20th International Scientific Conference Economics and Management - 2015 (ICEM-2015)
The concept of competition and the objectives of competitors
Enn Listraa,*
aTallinn University of Technology, Tallinn 19086, Estonia
Abstract
The aim of the conceptual paper is to deal with the different meanings of competition, to systemize the versions of concepts of
competition arranging these in the same unifying framework, called in this paper the field of competition, and developed in this
paper. The unified concept of competition is developed showing of how its meaning depends on the objective(s) of the agents in
competitive process. It can be used as the modelling device for analysis. Competition and competitiveness are the terms
frequently used both in business and public discussion about the economic units, and about their ability to perform according to
the strategic or policy goals. However, the meaning of the terms remain vague and to make things even more complicated, the
exact meaning depends on the problem under hand. The paper contributes to the discussion on the meaning of competition and
presents a model that may be used to interpret the use of concept. It also gives possibility to resolve some of contradictions
between different approaches.
© 2015 The Authors. Published by Elsevier Ltd.
Peer-review under responsibility of Kaunas University of Technology, School of Economics and Business.
Keywords: Competition; Objectives; Levels of competition; Dimensions of competition; Firm; market; Location; Cluster; Country; International;
Region.
Introduction
Competition and competitiveness are the terms frequently used both in business and public discussion about the
economic units, their environment and about their ability to perform according to the strategic or policy goals
derived from business, economic or social objectives. However, despite the fact that, as Krugman (1994, p. 30)
states, „… people who use the term „competitiveness“ do so without a second thought“, the meaning of the terms
remain vague and to make things even more complicated, the exact meaning depends on the problem under hand.
* Corresponding author: Tel: +372 6204056
E-mail address: enn.listra@ttu.ee
© 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of Kaunas University of Technology, School of Economics and Business

26 Enn Listra / Procedia - Social and Behavioral Sciences 213 ( 2015 ) 25 – 30
The conceptual clarity is particularly important when one keeps in mind the purposes of teaching. Students first
encounter the term in their first microeconomics class when beginning their studies. After some time they arrive to
strategy class where the meaning and process of competition may seem very different from the former one.
Almost infinite variety of real world situations and array of possible problems have created a continuum of views
inspiring Boone (2000) to answer the question what is competition that „more than two hundred years after Adam
Smith we still don’t know“ and Krugman (1996) to claim that at least in the case of nations (international trade) the
term competitiveness is meaningless on the one hand and still giving possibility to have detailed definition for
general public in Mirriam-Webster and a precise definition of competitive markets in economics (Mas-Colell,
Whinston and Green, 1995, ch. 10) on the other hand.
In this theoretical paper that attempts to clarify the concepts of and around the competition the Stigler’s (1988)
definition „competition is a rivalry between individuals (or groups or nations), and it arises whenever two or more
parties strive for something that all cannot obtain“ is used as a starting point. While Stigler clearly speaks in his
broad definition about the real world, the economics definition of (perfect) competition is focused on the model
world –the most important and defining features of the „competition“ seem to be the objectives of the competition,
the objectives of the analysis and the dimensions of the competition.
The first set of confusion in the use of the term may arise from the differences of approaches taken by the
different interested parties. Demsetz’s (1981) text where he analyses economic, legal, and political dimensions of
competition may today be considered almost classical in that sense. The problem becomes even more complicated
because of the fact that in addition, different languages (terminology) are used frequently.
The second important complication arises from the aims of analysis. The business analyst developing new
strategy for a firm may have very different look on the market compared with the analyst from the public sector who
is trying to enhance the situation with the aim of (frequently vaguely defined) public benefit. The very different
tools maybe used and results obtained even in the case of exactly the same object of analysis. The ideological
content makes sometime things even more problematic (Minford, 2006) in public discussion.
The third set of complications arises from the existence of number of related and partly overlapping phenomena
and terms: competition, competitiveness, productivity, effectiveness, comparative advantage and so on. Vickers
(1995) gives a good introduction to the variety of competitions.
The aim of the present paper is to put different views on competition into the unified framework, called here the
field of competition. The first section of the paper deals with the influence of objectives on competition. The second
section introduces the importance of levels of competition for the analysis. The third section presents the elements of
unified framework for the competition analysis. The paper ends with conclusions.
1. Objectives of competition
Three important points to keep in mind when thinking about the objectives of competition are:
xunderlying variable of competition (price, quantity, quality etc.);
xaimed level of achievement; and
xcompetitive 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:
xinternally and externally static firm;
xfirms with ability to adapt without changing himself;
xfirms with ability to react improving himself and capabilities;
xfirms 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.
2. Levels of competition
In his book with famous notion about invisible hand Smith (1977) speaks also about how the different levels in
society are influenced by competition. Recently, the literature on the matter has expanded very fast.
Most prominent recent writer on the topic is Porter (1990, 2008) who has distinguished different levels of
competition as meaningful. Firms, locations, clusters, and countries compete or at least seek to be and become
competitive each on its characteristic environment of competition. A good overview of his views on the competition
is given in Ketels (2006). Interesting approaches can also be found in overview papers of Snowdon and Stonehouse
(2006) and in Misangui et al (2006). Buckley, Pass and Prescott (1988) give earlier survey of the firm’s
competitiveness on the international arena.
The three main strands of literature can be distinguished by the levels of competition as described on Fig. 2
(clusters can be seen as a merger of industries and location):
Maximum
achievable
Neoclassical
rationality
How
competitive?
Minimum
sustainable
Uncompetitive
Relatedness to the environment
Static Ability Ability Ability
firm to adabt to react to influence
Bounded rationality

28 Enn Listra / Procedia - Social and Behavioral Sciences 213 ( 2015 ) 25 – 30
xfrom firm to market and industry level;
xfrom location through the region to country level; and
xfrom firm through clusters to the level of countries.
Fig. 2. The levels of competition.
A region is more a geographical than economic unit but it still has important role to play in the competition
literature. As with the country level, regional competitiveness is a controversial concept but number of phenomena
in economies can be explained with the help of it. Kitson (2004) and Budd and Hirmis (2004) may be good starting
points to dig into the strand.
The most controversial has been the concept of competition on the level of countries with Porter (1990, 2008)
explicitly speaking how to improve the clearly existing competitiveness and with Krugman (1994, 1996) openly
announcing that the concept is full nonsense. However, one has to keep in mind that his proof of it relays on
assuming the objective of competition to be sustainability, not achievement.
3. The field of competition
Main source of the confusion with the term competition seem to be its complexity (Fig. 3) and problems with the
determining the focal unit of competition. For the purposes of this paper the focal unit of competition (the
competitor) may be any group of persons that is distinguishable by at least one of following criteria:
xthe persons may be bound into the group (firm etc.) legally;
xthey may have common budget constraint;
xthey may have common preferences and/or objectives; or
xthey may have common decision making and/or empowerment mechanism.
Second set of determinants of competition derives from the objectives the competitors have set or may set as
described in section 1. The process of competition and its outcomes depend heavily on the set of objectives that may
or may not be formulated explicitly in the strategies of the participants.
Third set of misunderstandings arises from the fact that mostly the focal unit is market or industry. The internal
world of the competitor and many aspects of environment remain frequently outside of analyst’s interests or
sometimes is the only focus. Part of the outcome in the case of economic competition is determined by the focal
unit’s internal structure (Lippmann and Rumelt, 1982), by its resources that gives rise to the resource- based view of
the firm (Barney, 2001; Wernerfelt, 2013), and by specific form of these, capabilities and dynamic capabilities
(Peteraf, 2013).
Fourth, and maybe the most frequent problem is connected with concentrating on the market type of relations that
tends to focus attention to the market or industry. All four basic forms of relationships (market exchange, networks,
Economy international Country
Market
Cluster Location
Industry
Firm domestic Household

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hierarchies, and institutions) are present on all levels where the competition may take place. The outcome is heavily
influenced by their configuration.
Fig. 3. Field of comp etition
Fifth, different internal and/or external competition environments that may be either static, stationary or changing
may lead to very different actions in the competition process.
Sixth, some specific features of the competition model are determined by the features of the focal unit, of the
modeling purposes and of the analyst. Mostly it influences the tools used in the analysis and by whether the analysis
is carried out for the benefit of the competing unit or for the benefit of some outer group.
Schematically, six dimensions of competition are summarized under the concept of field of competition on Fig. 3.
The definition is based on the one of Fligstein and McAdam (2012, 9): the field of competition is a social (or
economic) order in which actors are attuned to and interact with one another on the bases of (at least partially)
shared understanding about the objectives of the competition, relationships to the others in the field, and the rules
governing the (legitimate) actions in the field.
Conclusions
Different concepts of competition derive mainly from the complexity of the phenomenon that necessitates
researchers to focus only on specific features of interest in particular study or analysis. Abstracting from the specific
situations using concepts of the focal unit of competition and the field of competition gives possibility to analyze
these seemingly different concepts in the same framework.
The field of competition defines the unified framework for the analysis of competition and competitiveness in
terms of six dimensions: defining criterions of focal units of competition, the objectives of competition, internal and
external determinants of competitiveness, configuration of relationships influencing the competitive process,
combination of static and dynamic elements in the field of competition, and the purpose of modeling.
The model creates a framework to clarify the aggregation needed when moving from the firm-level analysis to
the country-level analysis.
Objectives
Focal unit(s)’
(firm etc)
Internal factors
Strategy
External factors
Competition mechanism
Industry/Market
External factors
Business environment
Relations
(Market) exchange Networks
Hierarchies Institutions
Processes Change

30 Enn Listra / Procedia - Social and Behavioral Sciences 213 ( 2015 ) 25 – 30
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