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.