In this video we'll talk about the advantage of having lower costs a business that has the ability to
sell its goods or services for less than its competitors will have a distinct competitive advantage
in the marketplace.
Naturally the only way to accomplish this and still earn a profit over the long term is to be able to
manufacture a product or provide a service at a lower cost than everyone else.
This is often the case for larger companies with the resources to buy in bulk or to operate more efficiently
for a lower cost and also for those types of businesses that can be effectively located close to both
the source of their income and to their customers such as in the case of a local quarry.
And here's a quick note you'll want to look for companies with a cost advantage that competitors cannot
replicate.
Remember that an economic moat should be something that's sustainable and can not be easily duplicated.
This means that if you want your company to have a sustainable competitive advantage you must make it
hard or impossible for your competitors to copy your methods.
Similarly companies can do this by developing and patenting new technology before their rivals.
So that's why when evaluating a company you should also spend some time reading it's quarter and annual
reports to see if they invest any money in R&D.
Companies with significant cost advantages can undercut the prices of any competitor that attempts to
move into their industry either forcing the competitor to leave the industry or at least impeding its
growth and companies with sustainable cost advantages can maintain a very large market share of their
industry by squeezing out any new competitors who try to move in you now understand the cost advantage
in the next lecture.
We'll talk about the size advantage see in the next video.