When Warren Buffett stated “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he was talking about companies with wide economic moats. The term Economic moat, famously coined by Warren Buffett, refers to the sustainable competitive advantages that immunize a business from competitors – similar to a moat protecting a castle. Mr. Buffett’s investing strategy is to invest in companies with strong economic moats as they are likely to remain successful over a long period of time.
Different types of Economic Moats offer different competitive advantages. Of all the competitive advantages a company can have, network effect is the rarest that is produced but once it occurs, it is likely to last for a long time.