Competitive Advantage
Competitive advantage refers to the status that asset or skill or power or geographic location (like proximity to oil) that one company (or country) holds over another, or perhaps over an industry.
The competitive advantage can be obtained by offering a similar product at a lower cost, a better product similar to others, better value, better benefits, and/or better service.
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Finance: What is comparative advantage?22 Views
Finance a la shmoop... what is comparative advantage, well comparative advantage is
literally just that when a producer of a product or service has a relative or
comparative advantage over another they should produce that product everything [Products on a conveyor belt]
else being equal
Shmoops general counsel lawyer dude is an amazingly fast typist [Person typing]
he types 90 words a minute and never makes a mistake
but he's a really good lawyer so we compared his advantages we could get
someone else to be secretary Bonzo here types 82 words a minute but is terrible [Bonzo typing frantically]
at dealing with patent offices intends to eat any subpoenas that are served it's great
that Bonzo is fast at typing but the value of producing something is relative
to the opportunity cost of not having it all right so you country A here might [Chair transports from country A to emporium]
not be better on an absolute level at producing something versus another
country, country B here but you might have lower trade-offs alright a couple
of quick country examples Kuwait produces oil and also chemicals it has a [Woman pouring substance into beaker]
comparative advantage in chemicals because chemicals are a byproduct of oil
its opportunity cost for producing chemicals is relatively low because of
its spill off from its oil meaning it's almost free to go produce it moving on
[Woman speaking to customer] second filipino customer care well it is relatively cheap to outsource customer
care to the philippines they have a comparative advantage because those same
workers aren't giving up producing some other output they have no other jobs
nothing else for them to do there are a pretty educated workforce and you know [Filipino people stacking boxes]
there's no minimum wage all right example three and usually you need a
mathematical example here so we'll throw one in Irv and Dave can both produce
tomatoes or cauliflower here's the time it takes Irv working alone to produce
each...
here's Dave....
all right well clearly Irv should produce tomatoes because he's better at [Irv carrying basket of tomatoes]
it than Dave is Dave should produce cauliflower because he's better at it [Tomato hits Dave in the head]
then he is at tomatoes and while the opportunity cost works favorably to his
advantage there so yeah that's comparative advantage in a few different
examples and as Bonzo likes to call it [Bonzo screams and waves arms in the air]