Hayek’s theory of competition

Hayek’s theory of competition views it as a dynamic discovery process rather than just a market equilibrium. Instead of seeing competition as firms perfectly rational and driven solely by profit, he sees it as a continuous trial-and-error process where businesses innovate and respond to changing prices and information. This process helps consumers find better goods and services while firms learn and adapt. Competition thus acts as a discovery mechanism, uncovering decentralized knowledge, coordinating economic activities efficiently without central control. In this way, competition is essential for innovation, adaptation, and the effective functioning of a free economy.