BUS 800 Study Guide - Final Guide: John Wiley & Sons, Competitive Advantage, Cost Leadership
Document Summary
Chapter learning objectives: understand the term competitive advantage and identify the circumstances in which a firm can create a competitive advantage over a rival. When two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit. Firms can create a competitive advantage when some kind of imperfection exists in the competitive process: predict the potential for competition to wear away competitive advantage through imitation. Firms owning resources or having capabilities that are in some way unique and offer the firm some protection against imitation by rivals: distinguish the two primary types of competitive advantage: cost advantage and differentiation advantage. According to porter, cost leadership and differentiation are mutually exclusive strategies and firms that are stuck in the middle are almost guaranteed low profitability. Most firms do not face such stark alternatives.
