Competition and Why Some Firms Keep Winning

In, a, market, with, many, similar, sellers, and, easy, entry,, competition, drives, prices, down, toward, costs., Profits, shrink, toward, zero., This, isn’t, a, market, failure., It’s, the, market, doing, its, job., Any, firm, making, unusually, high, returns, is, somehow, shielded, from, that, reality., Competitive, advantage, is, what, provides, that, shield.

There, are, two, main, paths, to, gain, it., Cost, leadership, means, producing, at, a, lower, cost, than, your, rivals., You, can, achieve, this, through, scale,, better, processes,, cheaper, inputs,, or, a, strategic, location., This, way,, you, can, survive, at, prices, that, would, put, others, out, of, business., Differentiation, means, providing, something, that, customers, value, enough, to, pay, a, premium, for., This, could, be, quality,, brand,, design,, service,, speed,, or, reliability., A, firm, that, tries, to, do, both, without, a, solid, reason, often, fails., It, ends, up, pricier, than, the, cost, leader, and, less, distinctive, than, the, differentiator.

Advantage, only, matters, if, it, lasts., What, makes, it, last, is, a, barrier, to, entry, or, imitation., Think, economies, of, scale, that, a, newcomer, can’t, match,, a, brand, built, over, decades,, patents,, exclusive, supply, contracts,, high, customer, switching, costs,, regulatory, licenses,, or, network, effects., The, product, gets, better, as, more, people, use, it,, making, it, harder, for, competitors, to, take, the, lead.

Let’s, be, clear, about, what, competition, looks, like., Firms, compete, on, price,, but, they, also, compete, on, quality,, convenience,, brand,, service,, and, innovation., Non-price, competition, is, usually, the, more, appealing, battle., A, price, war, can, be, matched, instantly, by, any, rival,, but, a, strong, reputation, takes, time, to, build.