The fundamental role of knowledge in AE explains the significance attributed to the use of knowledge in society by Hayek (1937, 1945, 1974). According to Hayek, the importance of knowledge stems from the fact that its accumulation in the process of receiving information and its subsequent use enables actors to adapt to constantly changing circumstances and to find opportunities to use scarce resources, both of which constitute important characteristics of the market process. The more efficiently valuable knowledge is used, the better economic entities’ private plans and actions can be coordinated, and the better results of economic performance and development can be achieved.

According to Hayek, knowledge is incomplete for every economic entity. The statement complies with the provision concerning the ignorance of actors and partially the thesis of bounded rationality within the context of NIE. The downside of the problem of using knowledge in society is the high methodological status of the concept of ignorance within the AE.

Ignorance means a decision-maker lacks knowledge of circumstances and opportunities that matter from the point of view of attaining his goals, even if that person tries to make rational (reasonable) decisions. A process of movement from ignorance to knowledge about new opportunities that enable the creation of new value is an important element of competition.

Conversely, this process is a necessary condition to provide firms’ competitiveness. However, unlike the “ignorance–knowledge” issue from the individual choice perspective, DCT in fact addresses the issue of collective actions within a firm with multi-level routines. This means the “ignorance–knowledge” individual choice is a building block for understanding collective actions on the firm level.

Changing the borderline between knowledge and ignorance for actors is an essential feature of competition. The acknowledgement of the significance of such a borderline within the context of individual behavior is a characteristic of AE, but without an accent on collective actions based on mechanisms of coordination that are alternative to the mechanisms of prices — an idea which is clearly borrowed from TCE.

The distinction between knowledge and lack of knowledge is also present in the economics of information based on maintaining the optimization logic of individual choice. However, unlike AE, in economics of information, the resources used to receive knowledge have an opportunity cost (Stigler, 1961). The process of obtaining information is similar to other types of production processes and never involves unexpectedness (surprises).

Thus, discovery as the conceptual core of the competitive process for AE is something between the results of systematic search, when an economic entity obtains the ex ante lacking information, and windfall profit that did not require a display of features characteristic for an entrepreneur (Kirzner, 1997, p. 72). The obtaining and use of information on new opportunities through organizational performance is a process that has a similar nature to the one described by Kirzner with one important detail: this information is a result of coordinated efforts of individuals within a mechanism of governance alternative to the market (in this case — hierarchy), which also might be interpreted in terms of dynamic capabilities or meta-routines (Zollo and Winter, 2002). Dynamic capabilities following Loasby (2010, pp. 1303–1304) contain two sets of characteristics: (1) generic: the potential to deliver consistent performance within a specified field by repeated application of established patterns of behavior; and (2) specifically dynamic: capabilities that allow performance to be changed either in response to changed circumstances or to the exploitation of new ideas. According to Winter (Winter, 2003), dynamic capabilities are the second (higher) order capabilities that presuppose the ability of the firm to realize Schumpeterian innovations. A special feature of dynamic capabilities is the combination of frequent organizational actions (routines, or “best practices” unlike ad hoc improvisations; see Dunning and Lundan, 2010, pp. 1226–1227) and the uniqueness of changed conditions.

A similar problem arises in connection with modeling based on the assumption of information asymmetry, which is crucial for the principal-agent literature. The principal may be unaware of the characteristics of a particular agent that are important for the former, but at the same time, according to basic agency models, there is information concerning the characteristics of the distribution of different types of agents on a certain market. A proponent of AE would agree that the principal is unaware of the intrinsic characteristics of a particular agent and of goods and services provided by this agent. However, he/she would add that the principal does not have knowledge about the distribution of agents between their different types either, or even about the very set of possible types of agents (at least ex ante). This is especially important for the case of multiple valuable characteristics of agents and of goods and services to be provided by them that remain hidden from the principal.

With respect to product markets, ignorance actually means the existence of opportunities to gain economic profit that remain temporarily unnoticed by participants in economic exchanges.6 A lack of ignorance is equivalent to a lack of opportunities not only for discovery but also for ranking alternatives by a decision-maker. This is why in a situation of full awareness by participants in economic exchanges, competition as a process becomes impossible. Moreover, it is the same reason why the subject matter (i.e., dynamic capabilities as sources of SCA) evaporates.

The concept of ignorance of the present but hidden (unperceivable but detectable as a result of the entrepreneur's actions, or exploitation of dynamic capabilities in DCT, as an expected but unspecified ex ante result) opportunities is supplemented in the Austrian tradition with ignorance in time. It is a lack of knowledge about the consequences of the actions of the decision-maker within the context of simultaneous activities of many other people atomistically adapting to changing circumstances. From this perspective, ignorance is closely connected with unpredictable and unexpected results of competition.

It is important to emphasize that unpredictability of the future may be quite expected and apparent to the actors. However, the neoclassical model of search for information does not at all fit into the logic of AE or DCT because in the NCE an agent compares the costs of search and acquisition of information, on the one hand, and the anticipated benefit from the use of this information, on the other hand. However, these considerations hardly cover all of the relevant issues.

It may seem that the formulation of the problem of ignorance of the “Austrian individual” has been well described in terms of uncertainty in the models of individual choice, which are among the most well developed in NCE. However, this is only the first impression. The assumptions used in these models are criticized (including behavioral economics research by Kahnemann, Tversky, DellaVigna and others; see Pesendorfer, 2006). Let ignorance correspond to uncertainty according to Knight (1921), rather than hazard with a known objective probability of the onset of different versions of future events. In reality, however, ignorance does not boil down to uncertainty; this is true not only in the traditional neoclassical sense of the word, but even in terms of parametric uncertainty, which Knight presented as the true uncertainty whereby the set of elementary events is complete but identifiable probabilities are only subjective.

Uncertainty in AE means that elementary events are unspecified ex ante and it is therefore impossible to estimate the value of investments in obtaining reliable information. This is a characteristic of structural uncertainty (Langlois, 1984), within the frames of which a decision-maker can see and, hence, specify only part of the probable outcomes; the rest of them fall into the category of strategic surprises. The opportunity to react proactively on unspecified ex ante changes in circumstances is among the key building blocks of DCT as an explanation of SCA in a permanently changing environment with various types of shocks.

An actor may acknowledge that events he/she is unaware of may take place in the future. Moreover, these events might have a significant impact on opportunities to attain his/her goals. This is why the characteristics of individual behavior — in addition to rationality and ignorance — also include learning and, finally, adjustment (by incorporating recent experience in initial plans).

To draw a line: according to AE, competition is a process of moving the borderline between ignorance and knowledge, but neither the costs nor the benefits, nor the very moment of acquiring knowledge, can be evaluated ex ante and hence cannot be an object of rational choice (in the sense this concept is interpreted by NCE).

The ex post study of behavior and exchange results only creates the veil of certainty which might create significant risks of errors in decision-making if applied to the normative area. Regarding antitrust policy, it is related to risks of type I errors: accusation and prosecution of an innocent actor by imputing to him an awareness of processes that ex ante were (ineradicably) unexpected. Regarding strategic management issues it might provide false ground for an ad hoc reaction to a particular event without a broader context of the issue: development of proactive adapting firms’ capabilities. DCT contains the important idea that SCA is a consequence of systemic and firm-specific dynamic capabilities that are not ready to be substituted for perfect forecasts (as it is implicitly supposed).

Rationality is a fundamental concept in economics. It establishes correspondence between an actor's goals and the means of their attainment (Robbins, 1935, p. 16). Despite the simplicity of the definition, the use of this concept is related to a number of methodological problems. It is sufficient to note the variety of forms of rationality, including its classification into functional and instrumental; full, variable and bounded; procedural and substantive rationality (Avtonomov, 1998; Simon, 1978).

The traditional concept of rationality of choice within the frames of NCE is based on the optimization technique applied in economics where subjective criteria of rational choice are not essential. From this viewpoint, rationality is instrumental. Competition might be considered as a set of conditions and as a result in conjunction with instrumental rationality. Thus, instrumentality of rationality makes redundant the attempts to disclose the nature of competition as a process, if it does not rule them out completely.

According to AE, human rationality cannot be regarded in terms of optimization because inseparable elements of the optimization task are formed in the process of the market's functioning. To understand the nature of competition within the context of the Austrian approach it is insufficient to change the assumption of full rationality for the assumption of bounded rationality as in TCE. Of paramount importance is the decision-maker's ignorance of various circumstances that matter for the purpose of attaining his goals. Moreover, a person's ignorance can also be the result of a rational (but not necessarily maximizing) choice. Meanwhile, the relationship between competition and rationality in AE is far from being as trivial as it seems in the context of competition models constituting the elements of the theory of price. In fact, if competition is weak, participants’ decisions are not taken at the boundary of opportunities — both technological and allocative (e.g., not all cost saving opportunities are used according to Leibenstein's (1966) X-efficiency concept). This can be explained by the fact that the process of decision-making is not free of charge and errors, on the one hand, and that it requires time and rather serious emotional tension, on the other hand. Thus, a lack of competition correlates with the slack in behavior in search of opportunities to create value/ minimize cost as a way to provide SCA. At the same time, the limited opportunities for imitation are actually a condition for rent appropriation (ex post), on the one hand, and are incentives to develop capabilities (ex ante) (Kay, 2010, p. 1210), on the other.

At the same time, the intensity of competition may limit the opportunities for reasoning due to an increase in opportunity cost of each section of time as a frame for decision-making. In other words, time-specificity of decisions is one source of profit that is unlike wage and interest in an “evenly rotating economy” (Rothbard, 2009, p. 511). This in turn leads to a substitution of rational decision-making by intuitive decision-making. Using the comparative analysis of cognitive systems suggested by Kahneman (2003), the latter, in addition to offering conceptual presentation and codification of opportunities, may be even faster and in many cases may require less effort. This is a possible direct effect of competition. However, competition may have an adverse effect connected with the extension of opportunities for reasoning on the basis of development and application of special techniques and algorithms of decision-making. In some sense, the extension of the sphere of rational decisions by adding intuitive decisions conforms to the concept of “procedural rationality” in accordance with which algorithmized decision-making and actions substitute discretional ones. A firm's dynamic capabilities — unlike those of a person — combine parallel rational decision-making within a particular framework without excluding intuition.

At the same time, from the point of view of the result, decisions might actually be qualified as rational even if their adoption involves a large share of intuition. In this sense, rationality becomes a synonym for efficiency (or the choice optimality) both for the individual and the firm. Yet, situations are possible where reason is not used or is used insufficiently, not because of lack of time, but because of lack of incentives for identifying and comparing resource-available alternatives. A considerable share of such situations is associated with external competitive constraints for market players. Competition involves more rational actions defined in terms of results, although there is no clear mutual consistency between the strength of competition and reasoning behind the market players’ actions. This conclusion is closer to AE, which follows the logic of organic rationality, or rationality of the process (Williamson, 1985), which is actively explored by evolutionary theory. Thus, mechanisms balancing individual intuition, on the one hand, and individual and collective reasoning, on the other, look like engines for revealing new opportunities as a source of SCA.

The concept of awareness and rationality plays an important role in antitrust policy. The conceptual basis of antitrust policy presumes that the market players restricting competition can anticipate the effect of their actions. Moreover, other market players are assumed to be capable of identifying the actions of competitors and counterparties and their impact on the terms of their own decisions. Therefore, other market participants can evaluate the extent of the impact of counterparties’ and competitors’ actions on the competitive environment. Evidently, this concept is completely unacceptable for AE. It may also seem ambiguous from the point of view of NIE. However, NIE, unlike AE, does not consider the battle for market players’ opportunities for rational decision-making hopelessly lost.

In this connection, the assessment of competition advocacy is relevant as a specific component of antitrust policy. The main purpose of competition advocacy is to promote ideas and values of competition in society and convincing market players that active competition benefits them compared to enforcing of competition by legal rules.

The reason for advocacy in the framework of NCE is unclear. Assuming that economic entities are capable of evaluating their potential gains from alternative versions of the market structure, expenses of competition advocacy seem to be an embezzlement of resources. Regarding NIE, competition advocacy seems quite reasonable, since informing market participants reduces enforcement costs. The idea of competition advocacy might seem to be close to AE, given that the papers by Hayek and Mises are a true hymn to the competitive order. However, AE does not support competition advocacy, albeit for different reasons than their colleagues’ abiding principles of NCE. From the perspective of AE, arguments favoring competition may only be part of a policy of manipulation but, by definition, cannot be an element of informing market participants.

The skepticism of Austrians concerns not only antitrust policy but also competition policy in general. In contrast to NCE models that proceed from the assumption that all market participants are aware of the possible gains and losses in any state of the world, AE argues that no one can know about these gains and losses, including the corresponding state agency. In this context, judgment regarding a preferential market status is not possible, nor are evaluative judgments concerning the market structure and the actions of its participants. It is very important to stress that we might find strong separation of market concentration issues from competition within the AE research tradition (Mund, 1933). This idea was also supported by the mainstream IO several decades later when the previously dominant unidirectional approach within “structure – conduct – performance” paradigm (when concentration was thought to influence competition but not vice versa) was revised.

The figure of an entrepreneur in economics is perhaps one of the most ambivalent and ambiguous. It arouses the greatest level of discord among representatives of different traditions in economic research. This becomes particularly clear when comparing the concept of an entrepreneur with actors such as consumers and owners of resources. It is not accidental that standard economics textbooks seldom contain systematic presentations of the theory of entrepreneurship. This is even the case for AE, where Kirznerian concept of the entrepreneur is criticized by his colleagues for the erroneous separation of entrepreneur and owner, while other AE proponents (Rothbard, Salerno) appeal to “one-sided complementarity”. This vision might be found in von Mises's theory of entrepreneurship, which argues that an entrepreneur is always a capital owner but not every owner is an entrepreneur (Rothbard, 2009, p. 511; Salerno, 2008). Without delving into a review of entrepreneurship theories and their variations within AE we find it necessary to highlight some aspects important for understanding the concept of entrepreneurship in the context of competition studies in AE that are applicable for DCT.

First, although Kirzner argues that the entrepreneurial function is not logically connected with property rights to assets, de-facto one-sided complementarity highlights the significance not only of the incentives for appropriating profit but also of the readiness to bear the burden of risks of losses in case of failure. This idea is important for dynamic capabilities of the firm that confronts not only the uncertain benefits but also probable losses, as allocation of property rights is important in order for the decision-maker to make what are likely to be painful decisions.

Second, the entrepreneur's function might be explained in terms of arbitrage (spatial and inter-temporal) due to discovery of new opportunities for coordinating the individual plans of market players. Within this context the concept of an entrepreneur is close to the concept of arbitrage, which is easily compatible with NCE. In fact, there are usually sellers on the market who sell products that are underpriced or overpriced, and buyers who are ready to pay higher or lower prices for these products. However, buyers ready to pay higher prices may be unaware that the same product can be purchased at a lower price, and the sellers offering the product at a lower price may be unaware that someone was ready to purchase their product at a higher price. Obtaining and processing this type of information may be too expensive, but not for all market players.

The entrepreneurial function consists in identifying such buyers and sellers (bearers of individual plans) and making a profit without violating the interests of each of the actors, which constitutes a necessary condition for voluntary exchange. However, this has a spill-over effect in the form of translation of economically important information by the entrepreneur to other market players concerning the existing opportunities to use the assets at their disposal and, correspondingly their value.

Consequently, if all opportunities are reflected in the prices, which happens in a situation of Pareto-efficient equilibrium, space for exercising the entrepreneurial function disappears, as does the possibility of generating entrepreneurial profit. In this sense, there is an insurmountable contradiction between the neoclassical model of general equilibrium and the concept of entrepreneurship in AE.

Dynamic capabilities as a source of SCA are in turn the outcome of institutional entrepreneurial activity, including organizational innovations. At the same time, as it might be supposed, dynamic capabilities providing SCA are not invariant to the particular institutional environment including the mode of enforcement of antitrust norms. That is why significant changes in the institutional environment might require changing some dynamic capabilities of the first type (generic) by using dynamic capabilities of the second type (specifically dynamic). In any case, however, these changes are costly and time consuming. Moreover, there are some grounds to doubt the substitutability of the two types of capabilities. This means that entrepreneurial activity aimed at SCA is also differentiated where two types of dynamic capabilities are concerned.

Third, entrepreneurs are people who can quite easily be analytically singled out from a multitude of economic agents, but are much more difficult to identify empirically (Salerno, 2008). This is connected with the fact that being a member of a group of managers, workers, landowners, consumers and owners of capital does not make a person an entrepreneur. For this, he/she should display his/her own alertness in finding and using previously hidden opportunities to use underpriced assets. In the extent to which actors cope with this task, they might be qualified as entrepreneurs. That is why dynamic capabilities are crucially dependent on fulfillment of entrepreneurial function.

Fourth, people have different attitudes, including the ability to notice this sort of opportunity. On the one hand, there are incentives for detecting them; on the other hand, far from everyone actually gains this profit. There is a danger of sustaining net losses as a consequence of an error resulting from excess decisiveness (self-confidence, as is known form behavioral economics literature). In this sense, different levels of awareness of market players reflect a differentiation of focus (or perceptiveness, according to Kirzner). The origin of this differentiation of focus as a person's ability to notice opportunities is a separate issue. It is important to emphasize that a set of alternatives as a certain “menu” is not free of charge in the coordinate grid system of individual choice, which envisions the identification of entrepreneurs among the entire multitude of economic agents.

Entrepreneurs have an advantage in identifying hidden opportunities and therefore shift the system of economic exchange toward equilibrium in the sense that, ceteris paribus, the system of prices provides a more complete account of the set of resources and the multitude of alternative options for their use if external shocks do not move the system away from equilibrium proxy. In this sense, the very generation of hidden opportunities remains beyond the realms of focus of AE to the extent that the processes of changing preferences, available production technologies, as well as set and quantity of available resources are not being taken into consideration. One crucial point not only for the vision of competition and entrepreneurship but also for policy issues is the inappropriateness of the representative market actor concept. This point is quite similar to DCT based on four features of resources, namely, valuable, rare, inimitable and non-substitutable (Katkalo et al., 2010, p. 1175), because it presupposes the uniqueness of resources.

Disclosing hidden opportunities can be closely connected with the creation of new opportunities, which are largely described in terms of Schumpeter's (1912/1934) theory of economic development, but are quite suitable for purposes of explaining the basis of AE. Specifically, organizational innovations enabling resources to be recombined to increase the efficiency (productiveness) of their use may at the same time lead to restrictions of competition from the point of view of the antitrust authorities and the court, even though they are nothing other than manifestations of entrepreneurship and, hence, competition. In this connection, an exhaustive (closed) list of prohibited forms of economic organization (contracting) enables type I errors to be minimized, thereby outlawing such actions and agreements of a market player that do not restrict competition in reality (Joskow, 2002; Shastitko, 2011).

Specifically, imposing restrictions on selling products of a competing brand might be regarded as an institutional arrangement in the form of a vertical restraint, which allows efficiency to be raised by providing higher quality services at the same prices. However, unlike the Chicago tradition of research of nonstandard commercial practices or the tradition of NIE, which identify both negative and positive effects of this sort of restrictions, AE has not developed its own approaches. On the whole, this is explained by the generally skeptical attitude towards antitrust policy as a set of instruments for improving the market's performance — and hence, towards the need to improve its tools. What is the positioning of DCT within the context of the search of SCA taking into account capabilities related to the practices mentioned above?

For AE, the discharge of the entrepreneurial function is the driving force of economic development as well as the way to provide SCA (in DTC context). In principle, it does not raise the issue of a possible negative impact of entrepreneurship on welfare. For NCE, on the contrary, such a view of the issue has long been traditional, especially when the point is entrepreneurship under conditions of significant market power. Such difference in interpreting the role of entrepreneurship is reflected not only in the methodological status of the concepts of competition and monopoly but also in the normative component — the best policy design with respect to competition.

Following the logic of AE, competition is a process that exists only in a disequilibrium economic system in the sense that not all options for using resources are reflected in the system of prices and taken into account in economic agents’ plans. This is the case irrespective of some disputes within AE on the methodological status of the equilibrium concept (see, for example, discussions of Kirzner and Lachmann and followers related to the issue of whether the market process is inherently equilibrating — Kirzner's opinion — or whether its performance generates disequilibration).

Economic agents’ plans and expectations are only partially compatible, which becomes clear at the moment they start interacting with each other. This is why long-term equilibrium on the market of perfect competition was regarded by Austrian economists as a contradictio in adjecto. Nash equilibrium as one of the main tools of competitive analysis in contemporary microeconomics seems to be a similar although less obvious contradiction. If there were no profitable shift from the selected strategy, given a particular strategy of another party, to another strategy or party of strategic interaction, economic development would stop.

The methodological status of market equilibrium in AE has an important characteristic. Equilibrium is not a starting point in explaining the functioning of the market using the method of comparative statics even from very “NCE-like’ AE of Kirzner. The result achievable with different levels of probability and proximity reduces the ignorance of market players (zero ignorance is an equilibrium correlative) (Kirzner, 1997, p. 62). The parameters regarded by NCE as an essential element of equilibrium turn out not to be even a result in AE, but rather a direction of changes on the market explained by the actions of the market actors. According to AE, a market process takes place only when the results differ from expectations. This compels market actors to adjust expectations and decisions in the next period and change the mode of actions. This sort of adjustment is made in the form of revision of the opportunities set open (visible and attainable) to decision-makers. As a result of such revisions, some opportunities turn out to be phantoms and others overlooked.

The very discovery of this sort of opportunity is closely connected with the interests of actors, since it is their individually assessed opportunities, rather than the opportunities of society as a whole. In addition, the revision of opportunities is aimed at increasing private net benefits, thus consistently approaching the “possibilities frontier” for profitable business activity. However, such a result is possible in the case of offering more attractive conditions to partners in the market process and outdistancing one's competitors.

If equilibrium is achieved, plans and expectations are compatible, the market players are not being offered more attractive alternatives which were unnoticed before. It means that competition has stopped being an active force. It corresponds to internal contradiction in the Arrow–Debreu model recognized by Frank Hahn and stressed once again by Brian Loasby (2010, p. 1301). Since the intertemporal equilibrium is derived by collapsing the future into the present, there can be no need for any further decisions.

Equilibrium accounts for the side effects and unforeseen results of interactions of entities acting in their own interests. It is impossible to plan this result due to the ignorance of the decision makers for whom the discovery of new opportunities is a surprise in the sense that none of the participants can specify the parameters of the “surprise” ex ante.

Explaining the obtained results ex post is the most that can be achieved. This feature of equilibrium is a basis for far-reaching conclusions regarding economic policy in the sphere of competition protection with important backward implications for firms’ SCA specificity and related dynamic capabilities. It is noteworthy that AE is close to NIE regarding this matter. The fewer elements of so-called hybrid models that NIE models contain (i.e., assumptions of full and bounded rationality, zero and positive transaction costs in different dimensions of economic exchanges are combined), the farther away they are from the orthodox methods of NCE and the less these structures rely on the concept of equilibrium and the more they rely on descriptions of characteristics of coordination mechanisms. It is not accidental that comparative analysis of governance mechanisms is the core of the methodology in the TCE. The key problem here is combining the incentives design with the development of mechanisms of economic agents’ adaptation to changing circumstances (Williamson, 1985, 1996).

The market conditions are changing under competition. Specifically, production (transformation and transaction) costs change connected with the restructuring of production capacities demonstrates the difference of competition as a state of affairs determined in terms of equilibrium and competition as disequilibrium. Within such a formulation of the problem, the number of market players has no significance for evaluating the intensity of competition, which is in contrast with the Harvard research tradition beginning in the middle of the XX century.

Competition defined in terms of market equilibrium is closely linked with the problems of the market structure. Paradoxical as it may seem, in this matter, AE does not criticize the neoclassical mainstream, but rather the Harvard school, which is far less connected with it. The early (Harvard) school that worked within the program “structure – conduct – performance” regarded the equilibrium characteristics as a result of a certain market structure. This particular program was the main object of AE criticism.

The modern theory of industrial organization has long stopped supporting the postulate of unilateral dependence: the market structure determines conduct and thus the characteristics of results (prices, quantity, welfare effects). Models where the market structure is being formed under the impact of decisions of its participants, including strategic interaction as it is presented within gametheoretic framework, had become much more widespread several decades ago. This particular approach is closest to the Austrian concept of competition as a process. The parameters that were qualified by the “structure – conduct – performance” research program as exogenous turn out to be the results of the actions of the market players, e.g., production costs related to the employed technologies and forms of economic organization used.

Turning to competition policy issues from the perspectives of equilibrium and SCA the following should be stressed: actions, namely antitrust enforcement, aimed at the establishment and control of economic activity parameters that are largely a result of entrepreneurial activity have a negative impact on entrepreneurship, weakening and distorting incentives. Some of these consequences are (1) the mutation of SCA, (2) the weakening value creation activity and (3) the strengthening SCA in redistribution or rent-seeking.

Therefore, competition in AE is possible only in a situation of market disequilibrium. Fixing an equilibrium is equivalent to the absence of competition. This is what hinders dialogue between AE and researchers using competition models that constitute the conceptual basis of competition policy. In these models, Nash equilibrium and similar instruments are crucial for positive analysis and normative conclusions.

The interplay of competition with other important analytical elements of AE provides a key to understanding the radical contradiction between AE and NCE on the issue of monopoly.

From the Austrian position, a market process exists as long as there is freedom of sale and purchase based on specified and protected property rights, and a market process means competition. In this context a monopoly examined in economics as a special market structure is a myth because even a monopolist in the neoclassical sense of the word encounters the need to reveal hidden opportunities that are not reflected in current prices as a means of balancing the market (Kirzner, 1997, p. 69).

This does not mean that monopoly does not deserve Austrians’ attention. Monopoly is the opposite of competition, which is what underlies the approach to defining monopoly and to making relevant normative conclusions by the Austrian school. Competition is a process in which economic agents (entrepreneurs) offer more appealing alternatives to their counteragents, whereas the restriction of this sort of opportunity is none other than monopoly. This is why the main source of man-made monopoly is the government, which restricts the choice of alternatives by means of regulation (Armentano, 1999, p. 96).

However, the impossibility of legitimizing private monopoly on the final product market does not mean the impossibility of legitimizing private monopoly in principle. The distinction between the monopoly of a manufacturer as a product (service) producer and the monopoly of a manufacturer as a resource owner is of principal importance to AE. This distinction is largely manifested in normative evaluations of two types of analytical elements. The element of resource monopoly is legitimate whereas the product monopoly (naturally, on an unregulated market) is a myth. For example, this myth is close to Rothbard's skepticism towards cartels’— the most dangerous antitrust law violations — instability:“…a cartel is an inherently unstable form of operation. If the joint pooling of assets in a common cause proves in the long run to be profitable for each of the individual members of the cartel, then they will act formally to merge into one large firm. The cartel then disappears in the merger. On the other hand, if the joint action proves unprofitable for one or more members, the dissatisfied firm or firms will break away from the cartel, and, as we shall see, any such independent action almost always destroys the cartel. The cartel form, therefore, is bound to be highly evanescent and unstable.”(Rothbard, 2009, p. 651)

Remarkably, these ideas correspond to the so-called hostile tradition in antitrust described by Williamson (1985).

Exclusive control over a resource without which production of a certain set of goods and services is impossible creates opportunities for generation of profit that is monopolistic rather than entrepreneurial. In terms of DCT it is a specific Ricardian rent rather than a Schumpeterian rent. Unlike monopolistic profit, entrepreneurial profit is unstable and transient. Gaining it requires permanent efforts aimed at identifying and creating new opportunities and combinations of resources to make the outcomes more appealing for counterparties seeking for dynamic capabilities to provide SCA within the context of value creation.

It is much more difficult to establish a dialogue with respect to natural monopolistic activity in regulated sectors. From the perspective of AE, the very concept of an economic basis for identifying a natural monopolistic activity is erroneous (Di Lorenzo, 1996). The regime of natural monopoly is a result of collusion between the government and companies that have sacrificed the right to free pricing in exchange for a guarantee of entry restriction and compensation for losses, including normal profit. At this point, the positions of AE and representatives of the economic theory of regulation differ quite significantly. Even attempts to introduce competition to natural monopolistic markets requiring a radical reform of the regulation regime are seen by representatives of AE strictly negatively as addressing problems by inappropriate methods.

Therefore, the main specific feature of AE for establishing interrelation between competition and monopoly consists in the fact that AE sees the source of monopoly in circumstances which are external with respect to market performance: government interventions, exclusive and monopolistic rights to natural resources essential for the production of relevant goods and services. Free market is considered competitive by nature. From this point of view, the concept of private monopoly as a source of loss of public welfare is groundless, as is the theory of market failures.

In AE we might find some sort of theorems on privately induced monopoly in contrast with the state-induced one. The key element of proof is presented by Rothbard:“Why has he [producer] been able to extract a “monopoly price” through restricting his production? Only because the demand for his services (either directly by consumers or indirectly from them through lower-order producers) is inelastic, so that a decreased production of the good and a higher price will lead to increased expenditure on his product and therefore increased income for him. Yet this inelastic demand schedule is purely the result of the voluntary demands of the consumers. If the consumers were really angry at this ‘monopolistic action’, they could easily make their demand curves elastic by boycotting the producer and/or by increasing their demands at the ‘competitive’ production level. The fact that they do not do so signifies their satisfaction with the existing state of affairs and demonstrates that they, as well as the producer, benefit from the resulting voluntary exchanges.”(Rothbard, 2009, p. 634)

There are at least three ways to criticize this point of view from the perspectives of different approaches.

First, NCE: the monopoly price appears on the elastic segment of market demand in terms of the standard of elasticity estimates adopted.

Second, NIE: obvious problems of collective action and the free-rider problem are omitted, assuming that consumers are aware of the consequences of practices implemented by the producer.

Third, behavioral economics: it is not always clear whether the producer exploits consumers distributing part of the potential benefit in his own favor at the expense of consumers.