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On the Optimality of the Competitive Process: Kimura's Theorem and Market Dynamics

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  • J. Metcalfe

Abstract

This paper considers the optimality properties of a market economy in terms of three propositions that evaluate the outcomes of and the process of competition between a population of firms working within a given economic environment. We show that when firms differ in more than one competitive characteristic then competition does not select in general the most efficient firm nor does it always result in increases in the average efficiency with which resources are utilized. Drawing upon a theorem of Kimura, however, we show that competition has the property of maximizing the rate of change of the average selective characteristics in the population. We conclude that a more nuanced appraisal of the institutions of the competitive process is surely necessary. From an evolutionary standpoint, the outcomes of competition are always contingent on the nature of the selection environment and the characteristics of the whole population of firms that are being selected. Copyright Kluwer Academic Publishers 2002

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  • J. Metcalfe, 2002. "On the Optimality of the Competitive Process: Kimura's Theorem and Market Dynamics," Journal of Bioeconomics, Springer, vol. 4(2), pages 109-133, May.
    • Handle: RePEc:kap:jbioec:v:4:y:2002:i:2:p:109-133
    DOI: 10.1023/A:1021143303818
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    References listed on IDEAS

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    1. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 24(1), pages 11-32.
    2. John Foster & J. Stanley Metcalfe (ed.), 2001. "Frontiers of Evolutionary Economics," Books, Edward Elgar Publishing, number 2234.
    3. Martin Currie & Stan Metcalfe, 2001. "Firm routines, customer switching and market selection under duopoly," Journal of Evolutionary Economics, Springer, vol. 11(4), pages 433-456.
    4. Cohen, Wesley M & Malerba, Franco, 2001. "Is the Tendency to Variation a Chief Cause of Progress?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 10(3), pages 587-608, September.
    5. Elias Khalil, 2000. "Survival of the Most Foolish of Fools: The Limits of Evolutionary Selection Theory," Journal of Bioeconomics, Springer, vol. 2(3), pages 203-220, October.
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    Cited by:

    1. Christos N. Pitelis, 2011. "Foreign Direct Investment and Economic Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 1, Edward Elgar Publishing.
    2. Janet Landa, 2012. "Gordon Tullock’s contributions to bioeconomics," Public Choice, Springer, vol. 152(1), pages 203-210, July.
    3. Werner Hölzl, 2015. "Sunk costs and the speed of market selection," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 323-344, April.
    4. Christos N. Pitelis, 2009. "The Sustainable Competitive Advantage and Catching-up of Nations: FDI, Clusters and the Liability (Asset) of Smallness," Management International Review, Springer, vol. 49(1), pages 95-120, February.

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