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Skip to 0 minutes and 10 seconds In this lecture, we are going to talk about the concept of entrepreneurship. Probably you’re familiar with this concept. Perhaps you are an entrepreneur. You have a friend who is an entrepreneur. You have read about it, or you have seen it on the television. So it’s a concept that everybody knows. But in this lecture and the upcoming lectures, we’re going to take a closer look at what it actually is, how we define it, and what different theories say about what it means for society.

Skip to 0 minutes and 46 seconds So let’s talk about what entrepreneurship is about. Let’s go back to one of the first lectures of this course. There, we talked about fundamental uncertainty as a situation in which many consequences of actions are not certain. In a traditional economic approach on entrepreneurship, and that stems already from the early 1700s, they talked about entrepreneurs who exist where there’s uncertainty in a market. These entrepreneurs take advantage of this uncertainty to realise a profit. That means that entrepreneurs are everywhere and of all types.

Skip to 1 minute and 28 seconds So entrepreneurship in its purest form as described by a traditional economist is an individual who judges that there is a price difference between a product and service in one market and in an other market. And this person thinks that it’s possible to exploit that difference to make a profit. Perhaps he has to make some costs, for example, transportation. This type of entrepreneurship is called arbitrage. There are two types of arbitrage, spatial and temporal. Let’s give an example of both to make clear what the difference is. First, spatial arbitrage. Assume that we have two cities. In one city, a product is priced relatively low. And in the other one, it’s priced relatively high.

Skip to 2 minutes and 22 seconds So there is an opportunity to buy the product at one location and sell it at the other location. A famous example of somebody who starts a company in this way is the founder of Ikea. He saw that there were price differences between Stockholm and rural villages. He saw this as an entrepreneurial opportunity and started buying products such as mattress in Stockholm and selling it to farmers. In this way, he earned some money and was able to develop an international company like Ikea. Let’s now go to an example of temporal arbitrage. Now we have somebody who sees that the present price could be different from the expected future price of a product.

Skip to 3 minutes and 11 seconds For example, because he expects there will be scarcity in the future. We see that often with products like foods or raw materials. This is also an entrepreneurial opportunity. Instead of transportation costs, these kind of entrepreneurs have to do with storage costs or perhaps insurance. But again, this entrepreneur is taking advantage of differences in price between two different markets, one at present and one in the future. So in this traditional economic view, entrepreneurship is about making a judgement about possible profits based on imperfect information about prices and about costs. So the entrepreneur is both an arbitrageur and a risk taker. Please note that in this connection, risk is not the same as uncertainty.

Skip to 4 minutes and 8 seconds And so it’s not similar to a definition that we used in our first lectures. But risk is to word that the entrepreneurship literature usually uses this context.

Introducing the entrepreneur

In this video dr. Maryse Brand takes a closer look at what entrepreneurship is about, what it is and how to define it.

Note that this activity includes entrepreneurial decision making in a complex and uncertain world. If you want to know more about entrepreneurship in general we have included an extra activity at the end of this week

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Decision Making in a Complex and Uncertain World

University of Groningen

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