Economic Moats — Why Some Businesses Stay Great

Why does Coca-Cola still exist as a dominant business more than 130 years after its founding? Why can it charge more for brown sugar water than almost any premium beverage? Why has no competitor been able to take its market share despite decades of trying? The answer lies not in its recipe but in its moat.

Why This Matters

In a free market, profitable businesses attract competition. If a business earns exceptional returns on capital, rational competitors will enter the market, undercut prices, and compete away those excess returns until profitability returns to normal. This is the fundamental dynamic of capitalism. Yet some businesses consistently earn exceptional returns for decades — not because competitors are asleep, but because competitors cannot replicate what they have. These businesses possess economic moats: structural advantages that make it difficult or impossible for new entrants to compete effectively. Understanding moats is central to value investing because it is what distinguishes a temporarily profitable business from one that can sustain earnings power — and therefore intrinsic value — over the long term.