Competitive Advantage

The advantage a company has over its competitors, allowing it to have  a higher profit margin or have higher consumer loyalty.

A company with a competitive advantage can charge more for its services relative to competitors and weather downturns better.

Buffett invests in companies with strong lasting competitive advantages, also known as economic moats in some cases, because this is extremely favorable for investors in the long run. While other businesses have to resort to price wars to compete(what Buffett would call a commodity business), a business with a strong economic moat can maintain high levels of profitability and does not have to compete by offering  lower prices.
A company’s competitve advantage may be short term or may be more lasting. A company like Coca Cola has a competitve advantage over many other soft drink producers(except maybe Pepsi Cola) that will be long lasting and hard to narrow the gap. A steel company that has a competitive advantage due to new equipment may lose the edge when another firm acquires the equpiment as well.

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