ABSTRACT
This chapter discusses the issue of enterprise financial discipline is closely related to market conditions, in particular chronic shortage, and hence to the degree of effective competition. It identifies a number of prerequisites for well-functioning markets. Factor markets may not be needed for effectively functioning goods markets in the short run, but rational factor allocation may well be essential for dynamic markets over the long run. In the standard neoclassical model of perfectly competitive markets, a number of assumptions are necessary to generate mathematically demonstrable existence and efficiency properties. The number of transactors in many markets is small enough that some of them have a major impact on market conditions. The assumption of complete markets is unrealistic in the case of multiperiod dynamic analysis, but also even from a static perspective. A. Friedrich Hayek also views the market mechanism primarily as a process rather than as an equilibrium state.
