Entrepreneurship and the Economic Theory of Markets
By Mark Casson, University of Reading, UK, m.c.casson@reading.ac.uk
Abstract
Entrepreneurship studies has an uneasy relationship with mainstream economics. This monograph attempts to bridge the gap by presenting a formal mathematical theory of entrepreneurship, focusing on competing entrepreneurs operating in a segmented market. The entrepreneur is modelled as an innovative market-maker, discovering opportunities for trade. Each market segment is characterised by a maximum price that customers are willing to pay, and a quantity that they are willing to buy at that maximum price. The model can solve for the outcome of complicated market structures using a simple technique, namely linear programming.
A remarkable feature of the model is that it re-ignites historic debates in mainstream economic theory that have never been fully resolved, and are largely ignored in contemporary economic literature. It shows that markets normally have two prices-not one– namely a wholesale price and a retail price-and that, owing to segmentation, prices are not normally uniform but dispersed. The mathematical model is sufficiently simple that it does not require calculus, and the method of solution is so straightforward that the requisite techniques can be freely accessed on a laptop.
Entrepreneurship and the Economic Theory of Markets
Entrepreneurship and the Economic Theory of Markets focuses on the role of entrepreneurs in a market economy and presents a theory of innovation, imitation and competitive rivalry in a segmented global market where entrepreneurs are the key agents of change. This monograph is unusual in setting out a formal mathematical model of entrepreneurship that is essential to prove its point in a way that convinces economists as well as entrepreneurship scholars.
The monograph is set in six sections. Sections 1, 4, and 6 are essential reading. Section 1 introduces the topic. Section 2 presents a formal model which is the analytical core of the paper. Section 3 presents some case studies that illustrate the wide-ranging scope of the model. Section 4 reflects on how the model compares with alternative approaches to the economy, from the formative period of economic theory down to the present day. Section 5 examines the social fabric within which entrepreneurship is conducted, with an emphasis on institutions such as clubs and cartels. Conclusions and policy implications are summarized in Section 6, with a special emphasis on the teaching of entrepreneurship and its relationship to economic theory.
