Competitive Advantage

Abstract

We define competitive advantage as the degree to which a firm creates more economic value than rival firms in a given product market, noting that economic value is the difference between the value perceived by the firm's customers, measured by their willingness to pay, and the firm's costs. This definition is applicable whether the advantage is sustainable (Barney, J Manag 17:99–120, 1991) or whether it is merely a temporary advantage (D'Aveni, R.A. Hypercompetition: Managing the dynamics of strategic maneuvering. New York: Free Press, 1994). As we explain, it is consistent with the resource-based view of the firm (Wernerfelt, Strat Manag J 5:171–180, 1984) and the positioning view (Porter, M.E. Competitive strategy. New York: Free Press, 1980), as well as the bargaining perspective (Brandenburger and Stuart, J Econ Manag Strat 5:5–24, 1996).