Competitive Advantage

Loading the player...

What is 'Competitive Advantage'

Competitive advantage is an advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support.

BREAKING DOWN 'Competitive Advantage'

Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Competitive Pricing

    Setting the price of a product or service based on what the competition ...
  3. National Diamond

    A theory of competitive advantage developed by Harvard Business ...
  4. Comparative Advantage

    The ability of a firm or individual to produce goods and/or services ...
  5. Dog Eat Dog

    Intense competition in a market. Dog eat dog competition most ...
  6. Competitive Intelligence

    The process of collecting and analyzing information about competitors’ ...
Related Articles
  1. Markets

    What's a Competitive Advantage?

    A competitive advantage is an advantage a firm has over its competitors.
  2. Trading

    Competitive Advantage Counts

    What's the best indicator of a company's future success? Its ability to succeed when others fail.
  3. Markets

    Explaining Comparative Advantage

    Comparative advantage is the ability of an individual, company or country to produce a good or service at a lower opportunity cost than its competitor. Having a comparative advantage doesn't ...
  4. Markets

    Basic Concept Of Absolute Advantage

    Absolute advantage is the ability of an individual, country or company to produce a good or service at a lower cost than any competitor. An entity with an absolute advantage requires fewer inputs ...
  5. Markets

    Understanding Competitive Pricing

    Competitive pricing is the practice of setting prices for products or services based on what the competition charges.
  6. Investing

    How Can Companies Increase Market Share?

    Companies that increase their market share enjoy a competitive advantage. They receive better prices from suppliers, and they’re able to produce goods faster.
  7. Financial Advisor

    3 Secrets Of Successful Companies

    Make smart investments by spotting up-and-coming success stories early.
  8. Investing

    The Basics Of Value Chain Analysis

    Value chain analysis establishes an action plan to understand and implement actvities that create values to a firm's clients, resulting in firm profits.
  9. Investing

    Industry Handbook: Porter's 5 Forces Analysis

    If you are not familiar with the five competitive forces model, here is a brief background on who developed it, and why it is useful. The model originated from Michael E. Porter's 1980 book "Competitive ...
  10. Financial Advisor

    Be A One-Stop Shop For Your Clients

    Offering comprehensive financial services can bring in business, but coordination is the key to success.
RELATED FAQS
  1. How do I determine my company's competitive advantage?

    Find out how to determine if your company has a competitive advantage and, if so, learn how to figure out how to make it ... Read Answer >>
  2. What happens when a country focuses exclusively on its competitive advantage?

    Find out what happens when a country intentionally focuses solely on its most competitive factors of production or industries ... Read Answer >>
  3. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ... Read Answer >>
  4. What is the difference between CI (competitive intelligence) and competitive analysis?

    Understand the difference between competitive intelligence and competitive analysis. Learn why a company conducts both types ... Read Answer >>
  5. What is an economic moat?

    The term economic moat, coined and popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages ... Read Answer >>
  6. What factors influence competition in microeconomics?

    Find out what influences competition in microeconomics and how perfect competition, monopoly and oligopoly vary in their ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center