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What is a Cost Advantage?

 , updated on December 09, 2016
A cost advantage is a firm that can produce a particular product or service at a lower cost than the competition. Cost is a result of factors such as technology, automation, processes, productivity and resource costs.


Cost advantage is typically calculated for comparable items and doesn't apply when there is a large difference in quality. For example, an economy car with poor build quality can't have a cost advantage over a luxury car with superior build quality. For this reason, the term cost advantage is typically applied to commodity products and services where customers usually choose the lowest price item.


A cost advantage doesn't necessarily mean that a firm offers the lowest price. For example, a firm with a cost advantage may be a dominant competitor that sets a price umbrella.
Firms with a significant cost disadvantage are more vulnerable to price declines due to factors such as supply and demand issues.


In a commodity industry, a cost advantage can be a significant competitive advantage that allows a firm to dominate a market.
Overview: Cost Advantage
TypeCompetitive Advantage
Business Strategy
Definition A firm that can offer a particular product or service at a lower cost than the competition.
Related ConceptsAutomation
Competitive Advantage
Competitive Disadvantage
Business Costs

Competitive Advantage

This is the complete list of articles we have written about competitive advantage.
Absolute Advantage
Bargaining Power
Barriers To Entry
Business Cluster
Business Scale
Business Strengths
Competitive Differentiation
Competitive Pressure
Cost Advantage
Cost Innovation
Critical Mass
Cost Strategy
Customer Satisfaction
Digital Maturity
Distinctive Capability
Economic Advantage
Economies Of Scale
Economies Of Density
Economies Of Scope
Information Advantage
Experience Economy
Market Position
Information Asymmetry
Market Power
Price Leadership
Relational Capital
Relative Advantage
More With Less
Strategic Advantage
Network Effect
Switching Barriers
Organizational Culture
Trade Secrets
Product Development
Risk Management
Switching Costs
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