Market Dynamics and Competition: The Fundamental Role of Information

The basic intention of economic activity is to satisfy human needs. Although human needs are infinite, the goods with which to fulfill them are scarce. This scarcity has led to the formation of economic institutions that, while they cannot eliminate scarcity, at least minimize it. This scarcity sets the stage for various economic phenomena such as the exchange of goods, the division of labor, competition, markets, and corporations. In keeping with ‘modern’ standards, few natural commodities can be directly consumed, requiring a combined process to largely transform them into consumables. This process is divided into a variety of individual steps resulting in a complex nexus of economic activities. The fundamental premises to address the scarcity problem are (Picot 1998c):

• Production detours

• Innovation

• Division of labor and specialisation

The term “production detour” is attributed to the Austrian economist Böhm- Bawerk (1909), and is derived from Menger (Menger 1871). He classifies economic goods according to their proximity to final consumption. Consumer goods are therefore first order goods. They are produced from preliminary products through specific means of production, which are second order goods, which in turn stem from pre-products and higher order means of production.