A competitive advantage is an advantage a firm has over its competitors.Essentially, a competitive advantage is what enables a firm to earn profits through greater sales or margins, and therefore create strong returns for shareholders. There are two main types of competitive advantage. Comparative advantage refers to a firm’s ability to produce a good or service at a lower cost than competitors. For example, two widget manufacturers operate in the same market. Widget Maker ABC has invested in better technology and can produce more widgets for less cost than its competitor, XYZ Widget Makers. ABC has a competitive advantage, and it can charge a lower price for its product. The other type is a differential advantage. When a firm’s products or services differ from its competitors due to some unique feature, it has a differential advantage. XYZ’s widgets have a differential advantage over ABC’s because they can be used outdoors in all temperatures. ABC’s cannot operate in freezing weather. The more sustainable a firm’s competitive advantage, the more difficulty competitors have neutralizing it. Firms can realize competitive advantages through cost structure, product offerings, distribution networks and customer support.