What affords one company a wide moat while others have a narrow moat or none at all? Morningstar
describes five ways moats develop. ln the first, the so-called network effect, a service becomes
increasingly valuable as more people adopt it. Second, customers lack incentive to embrace a competing
product. A virtuat monopoly or control of a limited market can be a third type of moat, such as an airport-
services provider would command. A fourth consists of proprietary brands, patents and licenses that
create consistent cash flow. And a final advantage is pricing, or the ability to sell a better product cheaply,
generating higher profit margins.