Final answer:
Porter suggests firms achieve superior economic advantages through two strategies: cost leadership or differentiation. These strategies seek to provide a sustainable competitive edge, as seen in highly competitive industries like smartphones and airlines, where companies face intense competition through pricing, innovation, and customer service.
Step-by-step explanation:
Michael Porter suggests that firms can pursue only two paths to earn superior economic advantages within an industry: by achieving cost leadership or by differentiating their product or service. Cost leadership means offering products or services at the lowest possible cost, which allows a firm to either price lower than competitors and gain market share or maintain average prices and enjoy a higher profit margin. On the other hand, differentiation involves making products or services unique and attractive to consumers to warrant a premium price. Both strategies aim to create a sustainable competitive edge that is difficult for competitors to emulate.Evidence of serious competition between firms in an industry includes price wars, high levels of advertising, frequent introduction of new products, and efforts to improve customer service. Two highly competitive industries are the smartphone industry and the airline industry. In these industries, companies continually innovate and adjust pricing to gain an advantage over competitors. The constant battle for market share leads to attractive options for consumers but can compress profit margins for the companies involved.