WEBVTT 00:04.780 --> 00:10.590 In this video we'll talk about the advantage of having lower costs a business that has the ability to 00:10.590 --> 00:15.870 sell its goods or services for less than its competitors will have a distinct competitive advantage 00:15.870 --> 00:17.570 in the marketplace. 00:17.700 --> 00:23.310 Naturally the only way to accomplish this and still earn a profit over the long term is to be able to 00:23.310 --> 00:28.940 manufacture a product or provide a service at a lower cost than everyone else. 00:28.950 --> 00:34.650 This is often the case for larger companies with the resources to buy in bulk or to operate more efficiently 00:34.650 --> 00:39.990 for a lower cost and also for those types of businesses that can be effectively located close to both 00:39.990 --> 00:45.690 the source of their income and to their customers such as in the case of a local quarry. 00:45.930 --> 00:51.300 And here's a quick note you'll want to look for companies with a cost advantage that competitors cannot 00:51.300 --> 00:52.860 replicate. 00:52.860 --> 00:58.980 Remember that an economic moat should be something that's sustainable and can not be easily duplicated. 00:58.980 --> 01:03.840 This means that if you want your company to have a sustainable competitive advantage you must make it 01:03.840 --> 01:08.250 hard or impossible for your competitors to copy your methods. 01:08.250 --> 01:14.590 Similarly companies can do this by developing and patenting new technology before their rivals. 01:14.700 --> 01:19.920 So that's why when evaluating a company you should also spend some time reading it's quarter and annual 01:19.920 --> 01:23.610 reports to see if they invest any money in R&D. 01:23.940 --> 01:29.580 Companies with significant cost advantages can undercut the prices of any competitor that attempts to 01:29.580 --> 01:35.190 move into their industry either forcing the competitor to leave the industry or at least impeding its 01:35.190 --> 01:41.190 growth and companies with sustainable cost advantages can maintain a very large market share of their 01:41.190 --> 01:48.920 industry by squeezing out any new competitors who try to move in you now understand the cost advantage 01:49.270 --> 01:50.380 in the next lecture. 01:50.450 --> 01:54.590 We'll talk about the size advantage see in the next video.