Identifying a company's competitive advantage
The profitability of a business is determined more by the level of competition it faces than anything else. Unless there's a way to keep competition at bay, high margins and profits attract new competitors, forcing returns to fall. This is why competitive advantage vies with a low purchase price as the greatest source of investment returns. We all know we should buy businesses with competitive advantages for this reason, but how do you identify competitive advantage, what Warren Buffett calls an economic moat? In his book Competition Demystified Bruce Greenwald suggests there are only three true sources of competitive advantage – 1) cost 2) customer lock and 3) economies of scale. (VIEW LINK)
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