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Stocks 205: Economic Moats

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1.
When a manufacturer starts making parts for another manufacturer, that is an example of the network effect.
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True. The first manufacturer would be complementing an existing product and thus raising its value.
2.
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.
3.
Which type of moat benefits from making life difficult for its customers?
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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.
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.
An efficient scale occurs in a limited market being efficiently served by _______.
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One or very few companies. The "efficient" part of it means that very few players are needed to keep the market running well.
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?
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Intangible assets. Marketing is generally done to build brands, and brands are intangible assets.