Competitive advantage

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

The two forms of competitive advantage are cost advantage and differentiation advantage^[1]. 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.

A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms^[2]. Sustainable competitive advantage results, according to the Resource-based View theory, in the creation of above-normal (or supranormal) rents in the long run.

Analysis of competitive advantage is the subject of numerous theories of strategy, including the five forces model pioneered by Michael Porter of the Harvard Business School.

The primary factors of competitive advantage are innovation, reputation and relationships.