Final answer:
A firm has a competitive advantage over its rivals when it is able to innovate, producing goods more cost-effectively or with features that consumers desire, leading to temporary market dominance and above-average profits. Such an advantage is temporary and spurs continuous innovation and investment in R&D in highly competitive industries like technology and telecommunications.
Step-by-step explanation:
A firm has a competitive advantage over its rivals when it can produce products more cost-effectively or create offerings with desirable features that appeal to consumers. This advantage is typically rooted in the firm's ability to innovate, which provides a temporary edge in the market and the opportunity to earn above-normal profits until competitors catch up. The relentless pursuit of new innovation is essential, as it not only leads to efficiency and better products but also opens a world of possibilities for technology consumers, as emphasized by Gregory Lee, CEO of Samsung.
Recognizing the importance of innovation, firms invest in research and development to achieve a comparative advantage. Nevertheless, because innovations can be costly and risky, private firms may sometimes underinvest in this area. Being innovative necessitates a forward-thinking mindset and a dedication to continuously seeking ways to surpass the competition.
Intense competition between firms manifests through frequent product updates, aggressive marketing strategies, and significant investment in research and development. Industries such as the technology and telecommunications sectors are examples of highly competitive markets where firms relentlessly strive for differentiation to gain a competitive advantage.