Final answer:
A company holds a competitive advantage if it can provide high-quality or low-priced products or achieve a larger market share. Innovations leading to cost-effectiveness or unique product features are vital for maintaining this advantage and gaining above-normal profits. The concepts of absolute and comparative advantage are also integral to understanding competitive gains in international trade.
Step-by-step explanation:
Understanding Competitive Advantage
A company possesses a competitive advantage if:
- It sells a high-quality product.
- It sells a product at a low price.
- It succeeds in having a higher market share than competitors.
A competitive advantage can be achieved through innovation, which often leads to the capability to produce products more cost-effectively or with desirable features that consumers seek. As Gregory Lee, the CEO of Samsung, emphasized, a company's dedication to "relentless pursuit of new innovation" is crucial for maintaining an edge in the market and enables the company to offer novel technology to consumers. This edge often results in the ability to earn above-normal profits before competitors are able to catch up and offer similar products or technologies. Additionally, when firms compete by offering better or cheaper products, not only do consumers benefit from improved choices and potentially lower prices, but such competition also incentivizes technological advancements and efficiency improvements.
Furthermore, the concept of absolute and comparative advantage explains how countries can gain from specialization and trade. A country with an absolute advantage can produce goods using fewer resources, while a country with a comparative advantage can produce goods at a lower opportunity cost. Specializing based on comparative advantage reinforces the benefits of international trade.