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Stocks 205: Economic Moats

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1.
How can a low-cost producer achieve a barrier to entry?
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All of the above. These are all ways that a low-cost producer can achieve barriers to entry.
2.
Why would a company raise its switching costs?
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To lock its customers in. The more customers are locked in, the more likely a company can raise prices and still keep them.
3.
An example of the network effect is when _______.
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A company starts making parts for another company. This kind of complementarity increases the value of the latter company.
4.
What is an economic moat?
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A long-term competitive advantage that allows a company to earn oversized profits over time. As a moat, it is 'insulated' against the competition.
5.
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?
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Intangible assets. Marketing is generally done to build brands, and brands are intangible assets.
6.
Having an efficient scale also means having a wide moat.
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False. Although there are some efficient-scales with wide moats, the majority of them have narrow moats.