Some competitive advantages are based not on the distinctive capabilities of firms, but on their dominance or market position. These are strategic assets for the firm concerned. Strategic assets are of three main types. Some companies may benefit from a natural monopoly. They are established in a market which will not readily accommodate more than one firm. In some other markets, incumbent firms have already incurred many of the costs of supply, but entrants have not. In these the cost structure of firms may give them a competitive advantage. Still other firms benefit from market restrictions which are the product of licences and regulation. What distinguishes all these from true distinctive capabilities is that any other firm which had entered the industry, or had already made that expenditure or held that licence, would have enjoyed the same competitive advantage.
Firms which benefit from strategic assets are generally engaged in activities where government regulation is an important influence on business behaviour. Around 40 per cent of European business is in industries which are owned by government, extensively regulated by government, or which mostly sell to government. Sometimes the government creates, or reinforces, strategic assets; at other times, or at the same time, the state may limit the firm's ability to add value from them. The establishment and exploitation of strategic assets is often restricted by regulatory and anti- trust policies. In the final section of the chapter I outline the main rules which govern European companies.
Distinctive capabilities enable companies to produce at lower cost than their competitors or to enhance the value of their products in ways that put them ahead of their rivals. Distinctive capabilities are the product of the organization or the firm itself--its architecture, its reputation, or its success in innovation. Yet some firms enjoy an advantage over their potential competitors even though there is nothing they can do which these other firms, if similarly placed, could not do equally well. These may be firms which have a licence which is not available to other firms, or they may be firms which are