Economic moat
Also called: moat, competitive advantage, durable competitive advantage
A lasting competitive advantage that lets a company earn returns above its competitors' for many years.
Common sources are pricing power, switching costs, network effects, cost advantages, and licences or patents. A real moat shows up in the numbers: margins and returns on capital persistently above peers', through good years and bad.
Moats can narrow over time through technology, regulation, new competitors or complacency.
Learn more in these lessons
- Competitive advantages and their limitsWhat protects a company from its competitors, and how can you tell?
- Asset-light businessesWhy do asset-light businesses earn such high returns, and what are their risks?
- Judging competitive advantages in practiceHow can you tell whether a company really has a lasting competitive advantage?
- How to research a company from scratchWhere do you start when researching a company, and in what order?
- Building a research checklistHow can a checklist improve your research without replacing your judgement?
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