What defines competitive advantage for a firm?

Competitive advantage is primarily defined as the ability of a firm to outperform its rivals in the market, leading to superior financial performance and market position. This advantage can stem from various sources, including unique resources, superior efficiency, or better customer service, which allow the firm to meet customer needs more effectively than its competitors.

When a firm successfully leverages its capabilities, it can achieve better sales, higher profit margins, or a more substantial market share compared to its competition. This distinction is crucial; just operating in multiple markets, lowering production costs, or innovating faster would not guarantee a firm outperforms its rivals comprehensively. Those strategies could contribute to competitive advantage but are not definitive when isolated from the overall market performance context. Therefore, the essence of competitive advantage lies in the firm’s ability to deliver greater value or achieve superior performance relative to its competitors.