Competitive Advantage

Competitive advantage is a position a firm occupies against its competitors.

According to Michael Porter, the three methods for creating a sustainable competitive advantage are through

1. cost leadership
2. differentiation
3. focus.

Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost. Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost.

Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm