The concept of moat in business and using it for investing advantage

livemint.com:

Cost-effectiveness: A manufacturing plant situated near to the sources of raw materials, e.g. coal mine or limestone mine, has a cost advantage. If the mine is captive or on exclusive lease, it is difficult for competition to set up a plant with similar cost advantage.

Size superiority: Sometimes customers flock to a business because it is big, and that itself becomes its moat. In commodity exchanges, Multi Commodity Exchange (MCX) has the majority share of trades, which means higher liquidity and lower tick size. While there are other commodity exchanges, MCX is big “because it is big".

We have NSE and BSE, but the regional exchanges have withered away. In telecom business, there are licensing fees and infrastructure costs to set up the towers. It makes it that much difficult for new entrants.

Brands: In FMCG or consumer durables, there are certain brands which represent dependability and pull in customers. While nothing stops new businesses to be set up, it will take them a long time to build commensurate pull factor. The tables may turn only if the new business comes up with innovation that is disruptive and the segment leader fails to innovate.

An illustration of this is Apple. While competition is there in all of Apple’s product segments, Apple commands a price premium and customer-pull. Transition price/ shift cost: In some businesses, it is easy for the customer to switch.

The service provider has to have the edge to retain the customer. In certain businesses, the nature of the service makes it sticky and customers do not switch easily. People have multiple bank accounts, but usually have a primary bank account.