154 PETER ACTON
efficient production, it must be through capturing a larger share of the market
than competitors who can achieve equal productivity levels by matching its
factory layout. We must therefore look for other reasons to explain how this
can happen.
The tools used in this chapter to explain enterprise size in Classical Athens
are the same ones that contemporary experts in business strategy use to try to
understand and predict industry structure. They are based on the Darwinian
concept of competitive advantage: if an entity is to outgrow its rivals, it must
have some advantage over them in winning resources from the environment.
A competitor who is weak at garnering a particular type of resource needs to
find a different way of going about it. A key concept is the marginal compet-
itor – the one who can only just survive. If all competitors in an industry are
ranked according to their profitability, the one with the worst economics will
be making just enough to stay in business, or the cost of capital (Fig. 6.1).^34
For anyone to do better than this, they must have an advantage in some ele-
ment of profitability. Profit is defined as revenue less costs divided by assets, so
advantage must consist in one or more of three commercial elements: (1) prod-
uct preference enabling higher prices; (2) a lower cost position; or (3) a lower
investment in assets (Fig. 6.2).
In many businesses, success depends on relative performance on just one of
these dimensions. For a winery or a jeweller or an artist, all that really mat-
ters is the price that they can get for their product; costs are relatively unim-
portant. A coal miner’s returns, by contrast, depend entirely on cost position,
since all producers of the same grade of coal receive the same price per tonne.
Wal-Mart’s success owed much to its ordering and despatch systems, which
enabled it to carry much less inventory than its competitors. In some industriesReturn on investment/Effort (%)Industry RevenuesNo-one making
less can afford
to enter/remain
in businessCost of
capital/
survivalCompetitors