Contrary to popular belief, marketing was not born under management, but under economics. Issues such as markets and exchanges are at the core of both disciplines even though they are studied under different lenses. The common ground makes it possible to use one approach to analyze the other. That is the goal of this paper: to show that “Austrian economics” is helpful in understanding the key phenomena of strategic marketing. The aim is to show how business schools can adopt an Austrian approach in their economics classes to facilitate students’ understanding of market dynamics. This qualitative and exploratory study analyzes a general theory of competition, the Resource-Advantage Theory, using the Austrian concepts — action, time, and knowledge — to better understand business competition and what leads companies to achieve and maintain competitive advantages. By comparing these two theoretical frameworks, the paper analyzes, in a detailed manner, each one of the R-A Theory’s premises using ideas of the Austrian School and concludes that these ideas are helpful not only for understanding the Resource-Advantage Theory, but also Strategic Marketing as a whole and that, consequently, the Austrian approach should be taught at business schools economics courses.
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Companies, firms, enterprises, organizations, and other synonyms are used interchangeably along this paper.
As this paper discusses, all premises of this theory could have been built based on the Austrian school of Economics (ASE) concepts; however, the authors state that a number of different economics sources were used, including but not limited to those of the ASE. This opens a possible dialogue between Austrian ideas and other theoretical developments in business management and economics.
One of the most common problems that Business students face in classes is the misunderstanding of ‘competition’ and ‘market’. For pedagogical reasons, separating the world in different ‘markets’ is advisable, but one should remember that “All consumers’ goods are […] partial substitutes for one another.” (Rothbard 2004).
As Rothbard (2004, p. 323) points out, ‘mathematical procedures [common to mainstream economics, pervasive in academia] do not establish causal relationships’. In the first chapters of Man, Economy and State, Rothbard stresses the differences between praxeology-based ‘catalaxy’ studies and mainstream (mathematized) economics. Students that are submitted to the mainstream of economics thinking will later end up understanding that mathematized economics hardly talks about the daily business realities. Thus, that kind of approach to economics ends up being mostly useless to the business students’ future professional activities that will happen in non-statistical or econometrics areas of the businesses such as human resources, and most parts of marketing.
As will be seen, the premises of this theory could have been developed using ASE’s concepts; however, the authors explain that several sources, including the Austrians, were used. This opens a dialogue between Austrian ideas and other theoretical developments in business and economics.
One of the common problems business students face is the misunderstanding of ‘competition’ and ‘market’. For pedagogical reasons, separating the world in different ‘markets’ is advisable, but one should never forget that “All consumers’ goods are […] partial substitutes for one another.” (Rothbard 2004, p. 282).
Innovation is not seen only in the final products, although it is always embedded in them. Innovations can happen in different parts of the business at all times: in operations, in development processes, in managerial approaches, and in the way transactions are carried out (OECD/Eurostat 2018).
Free translation from the original Brazilian Portuguese version.
Free translation from the original Brazilian Portuguese version.
Even land, to be considered a resource, has to be thought as such. Land, per se, is not economically valuable if entrepreneurs, based on their subjective knowledge, are not willing and able to use it in potentially productive endeavors.
A brief definition of the entrepreneur is given later in this paper. However, for that particular topic, it is necessary to state that, if capital were homogeneous, the entrepreneurial action would be trivial and the majority, if not all, economic problems of organizations would not exist (Klein 2010, p. 87).
Of course, better performance can also be achieved by a decrease in the performance of the competitors, but this particular case is of no interest of this paper.
Capital and consumer goods can be classified differently depending on the use that the individual will make of them, a considerable part of the goods can be classified in both ways depending on their intended use. For example, food can be a consumer good for a family or a capital good for a restaurant.
One can think about cases in which firm’s financial performance will be bad for the agent, but this can be neglected in the present analysis.
One could argue that short-term profits could be detrimental to the long-term survival of a firm, which can be true, but the idea here is to use a more general case in which profits are necessary not only for the continuous existence of the firm, but also for the greater satisfaction of the people that depend on it.
Hayek defines equilibrium as a situation in which the different plans of individuals of a society in a given period of time are mutually compatible, equilibrium is broken when unexpected changes in those plans take place, Lewin (1997) details.
The debate between Kirzner’s and Lachmann’s takes on equilibrium in the 1970’s and 1980’s is one of the most important ones in the modern ASE (Barbieri 2001).
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I thank the Ludwig von Mises Institute for financial support and especially Joseph Salerno, Guido Hülsmann, Mark Brandly, Karl-Friedrich Israel, Patrick Newman, and the participants in the 2018 Mises Institute Summer Fellows research program for valuable comments on early drafts of this paper. Special thanks to Matthew McCaffrey, Mark Thornton, and Floy Lilley.
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D’Andrea, F.A.M.C. Strategic marketing & Austrian economics: The foundations of resource-advantage theory. Rev Austrian Econ 33, 481–501 (2020). https://doi.org/10.1007/s11138-019-00472-x
- Strategic marketing
- Austrian school of economics
- Competitive advantage
- Business competition
- R-A theory