Competitive Dynamics and Creating Sustainable Advantage
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[Excerpt] Firms that earn persistently higher levels of profit than competitors have a competitive advantage (Grant, 2008; Porter, 1985). A variety of theories within the strategy domain address competitive advantage as a way of explaining how management decisions or market factors lead to superior economic performance. According to Michael Porter (1985), to have a competitive advantage a firm must create superior value for buyers by offering lower prices than competitors for equivalent services or by providing unique services that a buyer is willing to pay for at a premium price. Using this definition, a given firm must devise a competitive strategy that is able to establish a profitable and sustainable position relative to competitors. Porter (1985) argues that a firm's profitability is also determined by the attractiveness of the industry. He offers a framework of competitive forces that are a function of industry structure or the underlying economic and technical characteristics of an industry. The positioning paradigm associated with Porter (1980) and grounded in industrial organization (10) argues that market structure drives firm level positional strategies (Mintzberg, 1994). This 10 foundation serves as the conceptual home for Chapter 15 by Kim and Canina, which notes that the nature of the market affects a firm's ability to compete. The chapter explores the complexity of market definition in the hospitality industry by examining clusters of competitive relationships. Using data from U.S. hotels, this chapter raises important questions about how best to define market boundaries and the implications of these definitions for determining appropriate competitors for strategic analysis.