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Stocks 205: Economic Moats

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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.
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True. By creating high switching costs, you can keep your advantage.
2.
In the language of companies, what are switching costs?
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Expenses incurred to switch over from one product to another. From the company's point of view, these can be a very positive thing.
3.
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.
4.
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?
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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.
5.
A company can achieve the 'network effect' simply by more people using its product or service.
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True. As more people use it, its value to the marketplace grows.
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.