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Warren Buffet popularized the term "economic moat," which describes a company's long-term competitive advantage that makes it tough for rivals to enter and compete in the same market. For investors and business analysts, it is a crucial idea since it aids in the identification of businesses that are most likely to make more money and hold onto market share over the long run.
Brand recognition, intellectual property, economies of scale, network effects, and high switching costs for customers are a few things that might add to a company's economic moat. In order to gain market share and lessen the danger of competition, these variables make it harder for competitors to enter the market.
As an illustration, a strong economic moat can be a well-known brand name that has built customer loyalty and made it challenging for competitors to capture market share. Similarly, a business that has a large collection of patents can defend its market position by forbidding rivals from adopting its technology.
Economies of scale, or the cost benefits that come from higher manufacturing volume, can also build an economic moat since they make it harder for smaller competitors to compete on price.
