What Is a Competitive Moat?

By Kristi Waterworth – Updated Jun 17, 2025 at 12:32 PM

Key Points

Competitive moats give companies a unique business edge, making them attractive to long-term investors.
Types of competitive moats include cost, cultural, networking, and resource advantages.
Investors should seek companies with strong competitive moats for potentially safer, sustainable returns.

When the enemy is at your door, having a moat can help protect your castle from rival kingdoms, and the same is true for businesses. A competitive moat is just one type of moat that can help keep your competition at arm's length and your sales strong.

Loading paragraph...

A castle surrounded by a moat. — Image source: Getty Images.

Loading image...

Loading paragraph...

Loading pitch...

Loading paragraph...

Monopoly

A monopoly refers to a market scenario where one single person or company controls the entire market for a particular product or service.

Loading definition...

Resource moats

Resource moats are about what you own or the collection you've established. This is often in the form of intellectual property or regulatory good fortune. If you have a whole catalog of exceptional patents, for example, that's a resource moat, as would be simply being in the right place at the right time when regulations changed, giving you an accidental monopoly or leg-up when you happened to be in compliance and no one else in your industry was.

Related investing topics

Loading paragraph...

How to Convert Daily Returns to Annual Returns

Knowing how to convert your daily returns to annual returns can help you better compare investments to one another, regardless of

What is a Fiduciary?

A fiduciary is someone who manages money, assets, or property for a client or beneficiary.

Are Bank Stocks Safe? The Pros and Cons

The bank itself is a safe place to put your money. But what about bank stocks?

Loading hub_pages...

Loading paragraph...

Loading pitch...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Apple, Microsoft, and Starbucks. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Common types of competitive moats

As stated earlier, there are many different types of competitive moats, but they tend to fall within a few categories.

Networking moats

Networking moats speak to who you know and the networks you've built to protect your service offering. Very large companies often have networking moats, whether those are professional networks, networks of vendors such as Airbnb (ABNB -0.15%), or actual networks of information that no one else has.

Cost moats

Cost moats refer to different cost-related protections. Obviously, consistent price advantage is a huge moat for a lot of companies, and this is usually achieved with economies of scale. But cost moats can also speak to switching costs, which can create an environment where it puts a customer at a disadvantage to switch from your company to a competitor.

For example, when smartphones were still relatively new, Microsoft (MSFT +1.06%) had their own operating system for phones, and anyone who chose a Microsoft phone was often locked out of popular apps. There was a distinct disadvantage to switching to a Microsoft phone from an Apple (AAPL -0.59%) iPhone for this reason.

Cultural moats

Cultural moats are more about company culture and deeply understood brand identity. Companies like Patagonia and Starbucks (SBUX -0.99%) are household names, but they're also cultural icons that really understand their customers -- and their customers resonate with the brand as a part of their own identity. This can be due to a quirky company that goes viral and then sticks, or due to a more traditional means of becoming a cultural icon through generations of innovation and use.

What Is a Competitive Moat?