Investor Education Series: Network Effect

What exactly is a network effect and why does a company which possesses a network effect, thought to be the most powerful form of an economic moat, has a greater potential to become a multi-bagger play? Which are the companies with network effect that you ought to know? The term economic moat was popularized by Warren Buffett. It is essentially a company whose business model can sustainably maintain a competitive edge over its peers for a long period. A moat is essentially a structural and sustainable competitive advantage that can drive long-term earnings and market share, which in turn translates to higher share prices. Types of economic moats According to Morningstar, these are some of the attributes that can give companies economic moats: Network Effect. The network effect occurs when the value of a company’s service increases for both new and existing users as more...