competitive advantage

Examples of competitive advantage in the following topics:

• Defining Comparative Advantage

  • However, the accompanying table shows that Chiplandia has a comparative advantage in computer chip production, while Entertainia has a comparative advantage in the production of CD players.
  • It is important to distinguish between comparative advantage and competitive advantage.
  • Unlike comparative advantage, competitive advantage refers to a distinguishing attribute of a company or a product.
  • For example, having good brand recognition or relationships with suppliers is a competitive advantage, but not a comparative advantage.
  • Chiplandia has a comparative advantage in producing computer chips, while Entertainia has a comparative advantage in producing CD players.

• Antitrust Laws

  • Actively ensuring that no agreements in place are counter to a competitive market.
  • Regulating against strategic actions that may result in diminishing the competitive elements of a market.
  • This document enacted provisions to eliminate anti-competitive agreements.
  • This graph illustrates the way in which monopolistic incumbents can control economic factors, ultimately creating surpluses or shortages to garner advantage.
  • Discuss antitrust laws aimed to improve competition and prevent monopolies from becoming more powerful

• Marginal Revenue and Marginal Cost Relationship for Monopoly Production

  • This is relatively straightforward for firms in perfectly competitive markets, in which marginal revenue is the same as price .
  • The marginal cost curves faced by monopolies are similar to those faced by perfectly competitive firms.
  • Most will have low marginal costs at low levels of production, reflecting the fact that firms can take advantage of efficiency opportunities as they begin to grow.
  • The marginal revenue curve for monopolies, however, is quite different than the marginal revenue curve for competitive firms.
  • In a perfectly competitive market, the marginal revenue curve is horizontal and equal to demand, or price.

• Infant Industry Argument

  • Economic markets are inherently competitive and newer economies are vulnerable to their more developed counterparts in other countries.
  • Economic markets are inherently competitive, and newer economies are highly vulnerable to their more developed counterparts in other countries for a variety of reasons.
  • The primary advantage to countries with higher economic power and bigger corporations is simply economies of scale and economies of scope, in addition to being further along the experience curve.
  • The reason for this is quite simply the significant jump in prosperity as international trade expanded, and the huge capacity for specialization, economies of scale, technology sharing, and a host of other advantages that have been a direct result of free global markets.
  • The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market.

• Regulation of Natural Monopoly

  • Natural monopolies are conducive to industries where the largest supplier derives cost advantages and must be regulated to minimize risks.
  • In this type of circumstance, the industry naturally lends itself to providing advantages for the single largest provider at the cost of allowing for competitive forces.
  • Regulating industries to minimize monopolization and maintain competitive equality can be pursued in a number of ways:
  • In short, the government can provide financial support via subsidies to new entrants to ensure the competitive environment is more equitable.
  • It was not practical to foster competition as a result, and the government recognized the necessity for a monopoly (until 1984, when AT&T was divested).

• Impact of Unions on Unemployment

  • If the labor market is competitive, unions will typically raise wages but increase unemployment.
  • Rather than a competitive market with many buyers (employers) and sellers (employees), there are many buyers but only one seller: the union.
  • Like any monopoly market, the outcome will be an equilibrium with higher prices and lower supply than in the competitive equilibrium.
  • In this competitive equilibrium, the wage rate would equal the marginal revenue product of labor and the outcome would be efficient.
  • In an oligopsony firms have the advantage over workers, and wages may be lower than they would be at the competitive equilibrium.

• Reasons for Trade

  • Countries benefit when they specialize in producing goods for which they have a comparative advantage and engage in trade for other goods.
  • Trading-partners reap mutual gains when each nation specializes in goods for which it holds a comparative advantage and then engages in trade for other products.
  • Efficiency gains: Domestic firms will be forced to become more efficient in order to be competitive in the global market.
  • Benefits of increased competition: A greater degree of competition leads to lower prices for consumers, greater responsiveness to consumer wants and needs, and a wider variety of products.
  • Countries benefit from producing goods in which they have comparative advantage and trading them for goods in which other countries have the comparative advantage.

• Entry Barriers

  • The term can refer to hindrances a firm faces in trying to enter a market or industry—such as government regulation and patents, or a large, established firm taking advantage of economies of scale—or those an individual faces in trying to gain entrance to a profession—such as education or licensing requirements.
  • Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices.
  • This means that new firms cannot enter the market whenever existing firms are making a positive economic profit, as is the case in perfect competition.
  • Pharmaceutical manufacturers are one type of company that generally rely on patents, which makes competition irrelevant for a period of time after development: competitors can't legally begin manufacturing the product until the patent expires.
  • In industrialized economies, barriers to entry have resulted in oligopolies forming in many sectors, with unprecedented levels of competition fueled by increasing globalization.

• Federal Efforts to Control Monopoly

  • The act outlawed price discrimination that gave certain buyers an advantage over others; forbade agreements in which manufacturers sell only to dealers who agree not to sell a rival manufacturer's products; and prohibited some types of mergers and other acts that could decrease competition.
  • In 1961, a number of companies in the electrical equipment industry were found guilty of fixing prices in restraint of competition.
  • Supreme Court held that a combination of firms with large market shares could be presumed to be anti-competitive.
  • In those markets, merger of two substantial firms would be anti-competitive, the court said.
  • Gas prices were low, and other, powerful oil companies seemed strong enough to ensure competition.

• Absolute Advantage Versus Comparative Advantage

  • Absolute advantage refers to differences in productivity of nations, while comparative advantage refers to differences in opportunity costs.
  • Absolute advantage compares the productivity of different producers or economies.
  • Even if one country has an absolute advantage in producing all goods, different countries could still have different comparative advantages.
  • Absolute advantage is important, but comparative advantage is what determines what a country will specialize in.
  • Country A has an absolute advantage in making both food and clothing, but a comparative advantage only in food.