Competitive Advantage

Competitive Advantage - Ability to be consistently more profitable than their competitors in the same market or industry. Persistent Performance Differentials are a result of Competitive Advantage.

* Have to be a genuine legitimate advantage. Not luck or windfall or seasonal or anything else.
* Not mere differences
* Not attractive industry characteristics
* Not competitive necessities
* CA is necessary for a firm to be MORE profitable

Productivity Differentials within the Industry

* Productivity = ratio of output obtained to input used.
* Difficult to compare since firms operate on different scales.
* TFP(Total Factor Productivity) is used instead which is a productivity measure under the assumption that firms are using the same input.
* Measuring productivity not profitability. Not a proxy for profitability.
* Productivity is largely different across firms in the industry and they tend to persist. And high productivity firms tend to last longer.
* Productivity differences tend to lead to profit differences.
* Firm-level attributes dictate productivity

Sources of Competitive Advantage

* Resource + Capabilities = Advantage
* Resources are inputs and/or specialised assets
* Capabilities are what a firm can do much better than others or is unique
* Combining these gives the firms advantage - consistently higher profits
* This is a resource-based view of the firm
* Competitive advantage is a method of using assets to create value and capture them. It can be used to increase quality(or niche) for consumer or reduce cost.
* Not what you have, but what you do with it.

Sustainable Competitive Advantage

* Hazy? No. HAEzI.
* Heterogeneity
	+ Products are different enough that you retain an advantage. Differentiation essentially. Differentiation has to be significant for competitive advantage to be significant.
* Imperfect Imitability
	+ Difficult to imitate hence competitive advantage is sustained. Can do this through specialised tech, synergy, corporate culture, patents, complicated strategy, experience, laws, network, scale, reputation, switching cost, etc.
	+ You don't know you're behind(Perception). You don't know what to improve(Inspiration). You don't want to improve(Motivation). You don't know how improve(Implementation).
* Early Mover Advantage
	+ First usage/domination of asset resources can be a huge advantage. Particularly for natural resources.
	+ Can dominate new market. Can get economies of learning more quickly. Can set entry barriers. Can build a reputation/brand first.
	+ Can be locked into old tech/methods if staying incumbent for too long.
* Appropriability
	+ Quality of being imitable or reproducible
	+ Imperfect Mobility
	+ If another firm can't imitate you they can't take away/imitate your core resource or capability.
	+ Co-specialisation
	+ Resources/Assets that produce more benefit when employed together instead of being individually employed

Strategic Positioning

* Cost Based Advantage
	+ Price reduction < Cost reduction = Profit gained
	+ Size, scale, tech, network, management
* Benefit Based Advantage
	+ Price increase > Cost increase = Profit gained
	+ Physical characteristics of product, Product quality, After product service, Perception/Image, Presentation
* Niche/Differentiation Based Advantage
	+ Differentiate significantly
	+ Target a large niche
	+ Produce at low enough cost
	+ Have to be very very focused. Have to say NO to a lot of things.