Business and strategy

Competitive Advantage

Something that helps a company keep its customers and profits and that competitors find hard to copy, such as a well-known brand, patents, low costs or a large network. Investors sometimes call it a moat.

Why does it matter?

Without one, high profits tend to attract competitors, who push prices and margins down.

How do I read it?

Advantages can fade: technology changes, patents expire and customers' habits shift. High margins held for many years can be one sign of an advantage, but they are not proof.

Example

A card network like Visa is accepted in millions of shops around the world. A new competitor would need both shops and cardholders at the same time, which takes years to build.