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1.
High switching costs help companies _______.
Raise prices without the risk of losing customers.
2.
Determining the goal of a business is normally easy.
False. Sometimes it is not easy, because a business might combine different objectives.
3.
Why are economic moats advantageous?
They allow a company to generate profits and keep competitors at bay. Companies that reward investors over the long haul are those that have a durable competitive advantage.
4.
Why might a restaurant company be unlikely to ever have anything more than a narrow moat?
Because consumer switching costs are so low. Many restaurants are quite profitable, and not all of them spend money on branding. Still, there is a lot of competition in the industry, and it's very easy to walk across the street to a rival restaurant, so the switching costs are very low.
5.
Which of these companies best exemplifies the use of the network effect?
EBay. eBay is the quintessential example of a company with a strong network effect.
