Stocks · Investing Glossary
What Is Economic Moat?
A durable competitive advantage that protects a company's profits from competitors.
The Full Definition
An economic moat is a durable competitive advantage that protects a company's market share and profitability from competitors over the long run — the business equivalent of a castle's moat keeping invaders out. Common sources of a moat include strong brand loyalty, network effects, high switching costs, patents, or economies of scale that make it hard for rivals to compete on price. Companies with wide, durable moats tend to sustain high returns on capital for decades, which is why moat analysis is central to long-term, quality-focused stock research.
Real-World Example
A company that dominates a market because switching away from its software would be enormously costly and disruptive for customers has a "switching cost" moat — even a cheaper competitor struggles to win customers away.
Related Terms
- Blue Chip StockShares of a large, financially stable, well-established company with a long track record.
- Free Cash Flow (FCF)Cash a company generates after accounting for capital expenditures.
- ValuationAn estimate of what a company or asset is actually worth, compared to its market price.
- Defensive StockA stock that tends to hold up well during economic downturns, regardless of the business cycle.