Competitive Advantage

AAA

DEFINITION of 'Competitive Advantage'

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.

INVESTOPEDIA EXPLAINS '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. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
  2. Augmented Product

    A commodity that has both the primary physical attributes and ...
  3. Strategic Gap Analysis

    The evaluation of the difference between a desired outcome and ...
  4. Self-Interest

    Acting in the way that is most personally beneficial. Adam Smith, ...
  5. Barriers To Exit

    Obstacles or impediments that prevent a company from exiting ...
  6. Gap Analysis

    1) The process through which a company compares its actual performance ...
RELATED FAQS
  1. What are the main reasons an investor should consider an allocation to the banking ...

    Financial sector performance is very closely tied to the performance of other industries yet it balances investment by providing ... Read Full Answer >>
  2. What happens when a country focuses exclusively on its competitive advantage?

    A country that focuses exclusively on its apparent competitive advantages without keeping in mind opportunity costs or market ... Read Full Answer >>
  3. What role do core competencies play in a balanced scorecard?

    To a business, a core competency is a an area of specialization that helps bring value to customers. The balanced scorecard ... Read Full Answer >>
  4. At what levels are core competencies required for businesses operating in the primary ...

    Core competencies help businesses understand their best abilities to perform in the market. Primary sector businesses mine ... Read Full Answer >>
  5. How do I determine my company's competitive advantage?

    Most companies are either founded on a competitive advantage or can apply a certain criteria toward finding their competitive ... Read Full Answer >>
  6. 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 Full Answer >>
Related Articles
  1. Active Trading

    Competitive Advantage Counts

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

    Adam Smith And "The Wealth Of Nations"

    Adam Smith's 1776 classic may have had the largest global impact on economic thought.
  3. Professionals

    Advertising, Crocodiles And Moats

    Memorable advertising is a brick in the fortress that keeps competitors at bay.
  4. Insurance

    Warren Buffett's Bear Market Maneuvers

    This esteemed investor rarely changes his long-term investing strategy, no matter what the market does.
  5. Fundamental Analysis

    The Financial Characteristics Of A Successful Company

    There are many factors that contribute to a profitable business. Find out what they are here.
  6. Personal Finance

    Evaluate Your Investments With SWOT Analysis

    Using this method, investors should be able to focus on a company's advantages and vulnerabilities.
  7. Active Trading

    Economic Moats: A Successful Company's Best Defense

    Find out why some companies thrive while others flounder.
  8. Investing

    3 Secrets Of Successful Companies

    Make smart investments by spotting up-and-coming success stories early.
  9. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  10. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center