finance
Economic Moat
Sustainable competitive advantage that protects long-term profits from competition.
Definition
Economic moat is Warren Buffett's term for the durable competitive advantage that protects a business from competition over the long term, keeping returns on capital high. Five common moat sources: cost advantage (consistently lower costs than competitors), network effects (more users = more value), switching costs (customers can't easily leave), intangible assets (brand, patents, regulatory advantages), efficient scale (the market only supports a few players profitably). Without an economic moat, competitive forces eventually compress returns to the cost of capital - the math is brutal.
In your business
- →Identify which moat source applies to you - or which one you're building
- →Invest in deepening the moat continuously - moats erode if not maintained
- →If you can't name your moat, you don't have one - you compete on price by default