How Comparative Advantage Influences Business Competition
International Economics and Trade – Lecture 2 [ Part 1 – Chapter 3 - "Competitive vs Comparative Advantage"]
Now I wanted to briefly address the relationship between comparative advantage as we found it in the Ricardo story versus the competitive advantage which is at the business level. In the first year you had International Business, in this textbook there is often the reference being made between the relationship between international economics and business competitiveness, but often you also have a sort of confusing usage of competitive and comparative advantage as they are basically the same thing or what is exactly their relationship. And that is what this story is supposed to be about. It is in the simple context of a two country, two commodity, one factor of production story.
But like I said it is just to show you the relationship. When you think of competition what you usually think about is for example car firms competing with each other, computer firms competing with each other. That is usually the product level. In the story here it would be all the x’s here represents firm in the cloth sector and they compete with each other trying to get market share. And we also have in the wine sector in the United States, also firms they are competing with each other. What you usually don’t consider to be competition is this firm with this one.
Cloth and wine, completely different products, competition doesn’t take place there.
The same thing could be said for the European Union. It has a lot of firms competing with each other in the cloth sector, it has a lot of firms competing with each other in the wine sector and that is basically it. If these two countries remain separate then we have let’s say four clusters of competition. Cloth in the US, wine in the US. Cloth in the EU and wine in the EU. And of course that entire situation changes when we have trade.
Because then all of a sudden competition also takes place across borders. We now have
Now I wanted to briefly address the relationship between comparative advantage as we found it in the Ricardo story versus the competitive advantage which is at the business level. In the first year you had International Business, in this textbook there is often the reference being made between the relationship between international economics and business competitiveness, but often you also have a sort of confusing usage of competitive and comparative advantage as they are basically the same thing or what is exactly their relationship. And that is what this story is supposed to be about. It is in the simple context of a two country, two commodity, one factor of production story.
But like I said it is just to show you the relationship. When you think of competition what you usually think about is for example car firms competing with each other, computer firms competing with each other. That is usually the product level. In the story here it would be all the x’s here represents firm in the cloth sector and they compete with each other trying to get market share. And we also have in the wine sector in the United States, also firms they are competing with each other. What you usually don’t consider to be competition is this firm with this one.
Cloth and wine, completely different products, competition doesn’t take place there.
The same thing could be said for the European Union. It has a lot of firms competing with each other in the cloth sector, it has a lot of firms competing with each other in the wine sector and that is basically it. If these two countries remain separate then we have let’s say four clusters of competition. Cloth in the US, wine in the US. Cloth in the EU and wine in the EU. And of course that entire situation changes when we have trade.
Because then all of a sudden competition also takes place across borders. We now have