What is an economic moat?

It’s a durable competitive advantage that protects a business from rivals — Warren Buffett’s metaphor for what lets a company sustain high returns over time without being competed away.

What are examples of economic moats?

Network effects (more users add value), high switching costs, economies of scale, strong brands, patents, and structural low-cost production. These are hard for competitors to copy, unlike a merely good product.

Do moats last forever?

No — they erode. Technology shifts and changing tastes have destroyed many once-dominant businesses. The key question isn’t whether a moat exists but whether it’s widening or narrowing over time.

Economic moat

Also called competitive advantage · Business strategy

An economic moat is a durable competitive advantage that protects a business from rivals, the way a moat protects a castle. Warren Buffett’s term for what lets a company sustain high returns over time without being competed away.

How it works

Ask what stops competitors from copying a business and taking its profits. Real moats are structural — network effects, switching costs, scale, brand, patents, or low-cost production — not just a good product, which rivals can imitate.

How to use it

Evaluating whether a business can sustain its profits or will see them competed away.
Distinguishing durable advantages (structural moats) from temporary ones (a hot product).
As a builder, designing a moat rather than relying on being merely first or best.

Worked example

Coca-Cola’s formula is replicable, but its brand, distribution, and shelf-space dominance are not — a new cola can match the taste and still fail. That brand-and-distribution moat is why Coke has earned high returns for over a century.

Where it fails

Moats erode — technology and shifting tastes have drowned many "unassailable" castles (newspapers, Kodak, Blockbuster). Assuming a moat is permanent is how incumbents die; the question is not "does it have a moat?" but "is the moat widening or narrowing?"

The deeper point

The most important word in "durable competitive advantage" is durable — almost every business has some edge, but few have one that survives a decade of competitors attacking it. A moat isn’t a feature you have; it’s a question you must keep answering as the world changes.

Frequently asked

What is an economic moat?: It’s a durable competitive advantage that protects a business from rivals — Warren Buffett’s metaphor for what lets a company sustain high returns over time without being competed away.
What are examples of economic moats?: Network effects (more users add value), high switching costs, economies of scale, strong brands, patents, and structural low-cost production. These are hard for competitors to copy, unlike a merely good product.
Do moats last forever?: No — they erode. Technology shifts and changing tastes have destroyed many once-dominant businesses. The key question isn’t whether a moat exists but whether it’s widening or narrowing over time.

Network effects Switching costs Economies of scale

Editorial synthesis © ReadGlobe 2026, drawing on the mental-models tradition (Charlie Munger, Farnam Street) and the primary sources for each model. · Last reviewed 2026-05-29.