Dynamic Market Competition and Continuing Disequilibrium

This chapter contributes toward a theory of dynamic selection that explains how dynamic market competition provides the dynamic context for the emergence of successive adaptive problems that firms confront in their external selection environments. A compelling need to explain the emergence of new adaptive problems that trigger new selection processes motivates the theory of dynamic selection to underpin the evolutionary theory of dynamic strategy. Firms that operate in dynamic competitive environments are typically subject to temporally distinct adaptive problems at different levels of economic organization and along various dimensions of competition. Hence, the notion of dynamic selection. Dynamic market competition, which considers the temporal dimension of competition, is simply a more realistic way of viewing competition among firms in the economy. The conceptualization of the nature of dynamic market competition is critical to explaining how it provides the dynamic context for economic selection. The equilibrium-based conceptualization of dynamic market competition poses a major hurdle in providing a logical explanation for the sporadic emergence of uncertainty in dynamic competitive environments among other issues. The continuing disequilibrium approach rooted in evolutionary economics—as opposed to the market equilibrium approach rooted in IO/game theory—enables a more realistic conceptualization of how the external selection environment—characterized by dynamic market competition—influences firms’ dynamic Strategy. The structural change in an economic population of profit-seeking firms is brought about by a variety of economic selection processes. On the one hand, evolutionary processes create and sustain the market-based context and on the other hand market processes bring about structural changes to the population.