The Might (and Myths) of Economic Moats

Economic moats represent sustainable competitive advantages that protect businesses from rivals, though their durability is often overstated and subject to change. While frameworks like intangible assets, switching costs, and network effects help identify potential moats, these advantages are rarely permanent and often only identifiable in hindsight. Companies like McDonald's leverage real estate ownership to maintain pricing power, while others like MercadoLibre utilize logistics to build network effects. Conversely, once-dominant firms such as Kodak, Blockbuster, and Fair Isaac demonstrate how technological shifts or regulatory changes can rapidly erode previously perceived moats. Investors should view moats as dynamic, evolving factors rather than static indicators of success, prioritizing companies where competitive advantages are actively widening rather than stagnating or declining.