Choose wisely. There is only one correct answer to each question.
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1.
Making it prohibitively expensive for customers to leave your company for your competitors is a way to build a sustainable competitive advantage in your industry.
True. By creating high switching costs, you can keep your advantage.
2.
Having an efficient scale also means having a wide moat.
False. Although there are some efficient-scales with wide moats, the majority of them have narrow moats.
3.
If a company is able to price its products lower than its competition and still make a profit while its competition is in the red, it has what type of moat?
Low-cost producer. Being a low-cost producer allows companies to price their products at lower levels than the competition, attracting buyers. Likewise, companies with low costs can price their products at the same level as competitors and make a higher profit.
4.
Which type of moat benefits from making life difficult for its customers?
Switching costs. High switching costs compel customers to stick with a company, because there is a cost to the customers to choose another alternative. Economies of scale make life better for customers because they allow firms to price their products lower.
5.
An example of the network effect is when _______.
A company starts making parts for another company. This kind of complementarity increases the value of the latter company.
6.
When a company tries to differentiate its product from those of its competition by spending money on marketing, it is attempting to create what type of moat?
Intangible assets. Marketing is generally done to build brands, and brands are intangible assets.
