A sustainable competitive advantage in a competitive market is achieved when:

• A. All firms in the market charge the same price for identical products.
• B. A firm temporarily earns higher profits due to a short-term increase in demand.
• C. Government regulations prevent new firms from entering the market.
• D. A firm can consistently maintain lower costs or higher product differentiation than its rivals over time.

Answer: (D)

Verified step by step guidance

1. Understand the concept of sustainable competitive advantage: it refers to a firm's ability to maintain an edge over competitors consistently over time, not just temporarily.
2. Recognize that in a perfectly competitive market, all firms sell identical products at the same price, so no firm can sustain higher profits or advantages.
3. Identify that temporary higher profits due to short-term demand changes do not constitute a sustainable advantage because they are not maintained over time.
4. Consider the role of barriers to entry, such as government regulations, which can limit competition but do not necessarily guarantee a sustainable competitive advantage unless the firm itself maintains unique strengths.
5. Conclude that a sustainable competitive advantage arises when a firm can consistently maintain either lower costs or higher product differentiation than its rivals, allowing it to outperform competitors over the long run.