Final answer:
Competitive differentiation in business involves forming partnerships for a competitive edge through unique capabilities. Product differentiation is key for monopolistically competitive markets, and advertising can aid in creating product distinctiveness.
Explanation:
Competitive differentiation in businesses is a strategy where companies partner to gain a competitive advantage over others by leveraging unique capabilities or resources. This can involve forming alliances with noncompeting firms to share expertise, specific capabilities, or jointly entering new markets.
One example of competitive differentiation is when a consumer packaged-goods company combines strong sales capabilities with efficient R&D processes to introduce new products quickly, creating a substantial advantage over competitors.
Product differentiation is crucial in creating monopolistically competitive markets where long-term profits are 'normal,' and advertising can also play a role in achieving product distinctiveness.
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