competitive advantage

Although the theory of comparative advantage is mostly used in the theory of international trade, it should be duly regarded as a crucial neoclassical assumption about the division of labour on >markets in general. As such, the concept implies that units of competition in markets will always specialize according to the principle of >opportunity costs, i.e. will produce the goods where the units operate with the minimum relative costs as compared to competitors. This may be explained by different endowments with production factors, such that the units specialize on production where they can use those factors most intensively with which they are endowed in relative abundance. This general hypothesis can be applied on actors, firms or, as is mostly done in the context of famous theorems like Heckscher-Ohlin or Stolper-Samuelson, on entire countries.

EE substitutes this theory with the concept of competitive advantage which contains comparative advantage as a special case with full knowledge, without uncertainty and without >novelty. Whereas comparative advantage takes the determining factors of competitiveness as exogenously given, competitive advantage is a theory of endogenous emergence of those factors. Following inframarginal analysis in this regard, EE explains the division of labour as a result of the endogenous emergence of patterns of specialization that lead to increasing productivity because of learning and the formation of specific knowledge.

In the theory of international trade, this amounts to an emphasis of the role of absolute advantage as compared to relative or comparative advantage. Absolute advantages of countries in their innovation systems, their institutional make-ups or their geographical position may result into stable absolute advantages, if a stream of novelties is recurrently created. This is most directly reflected in continuing productivity differentials across countries which are not related to single products, but appear in total factor productivity. A major reason for such continuing differentials must be that the underlying factors do not lend themselves easily to processes of diffusion across countries. Apart from obvious determinants like location, this refers, for example, to non-imitable institutional patterns or tacit knowledge embodied in the >innovation systems. Therefore, the theory of competitive advantage relates to the fundamental ontological property of >singularity.

In a similar vein, competitive advantages of firms rest on non-imitable and non-diffusable knowledge and network characteristics. In the context of networks, this may include results of the competitive process proper, in particular status positions which cannot be directly ursurped by competitors, and, hence, constitute absolute advantages. As a result, competitive advantage may lead into a certain immobility of distributional structures which can only be broken by major events like the introduction of new basic technologies, wars or other upheavals. Another important source of change is, of course, >creativity of actors who diagnose the state of immobility, and consciously venture "creative destruction".

Basic References

The seminal EE contribution developing an absolute advantage approach to international trade is
Dosi, Giovanni/Pavitt, Keith/Soete, Luc (1990): The Economics of Technical Change and International Trade, New York et al.: Harvester/Wheatsheaf.
For a generalization of the concept of competitive advantage see
Foss, Nicolai J. (1999): Networks, Capabilities, and Competitive Advantage, in: Scandinavian Journal of Management, Vol. 15, No. 1, pp. 1-15.
On the inframarginal concept of endogenous competitive advantage, see
Yang Xiaokai, Endogenous vs. Exogenous Comparative Advantage and Economies of Specialization vs. Economies of Scale, in: Journal of Economics, Vol. 60/1, pp. 29-54, 1994.
On inframarginal economics, see the website:
The Inframarginal Economics Society'

Semantic Field
singularity
competition
competitive advantage   innovation system