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1.
Why is pricing power so important to wide-moat companies?
Firms with pricing power are able to generate higher profits. Pricing power depends on a competitive advantage of some sort, a strong brand or a unique asset, and permits the firm to generate stronger operating margins and profits over time. These profits contribute to above-average returns.
2.
When customers are fragmented and don't have much influence on a product, that is an example of weak _______.
Buyer power. For the companies producing the products, that is a positive thing, as it strengthens their competitive positioning.
3.
Which of the five forces is most associated with the network effect?
Barriers to entry. The network effect, one of the main types of moats we have identified, is a strong barrier to entry. It also reduces the threat of substitutes and buyer power, since industries with companies experiencing the network effect will have few alternatives.
4.
Regarding buying companies that have economic moats, which is probably the more profitable strategy?
Buying them, holding them for a long time, and then selling them. Given their advantages in their industries, you would likely come out ahead by holding them for a long time.
5.
To find out whether a company you are investing in has a deep economic moat, you should look at _______.
How powerful any one competitive advantage is. This is what depth is about.
