Competitive Advanatage Checklist:

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• Competitive advantage: Supply, Demand or Economy of scale?

• Is the customer local, bounded either geographically or in product space, or large and scattered?

• Is the market fragmented to the extent that high fixed costs per unit advantage are eliminated?

• MKT by MKT assessment of existence and source of competitive advantage; if there are none is operational efficiency sustainable?

• If barrier to entry exists, what does the company do that the competition does not?

• Is barrier to entry incumbent or entrant? If it is entrant than the C/A is transitory.

• What is the captivity? How can that be challenged?

• What are the switching costs, time, $, familiarity? What other risks are there in switching?

• Does the incumbent understand its competitive advantage, and is it savvy enough to defend it?

• Is it a high growth MKT? If so, then barriers to entry are nearly non-existent.

• Is the company cheap/hated enough where operational effectiveness can alter the investment thesis?

• Is the company focused enough to be operationally efficient?

• Can EOS be developed because there are significant fixed costs and the market is fragmented? If there is a degree of customer captivity then this could be defensible.

• Examine CEO’s comments and whether they are synchronous with action? Growth, product, capital allocation history.

• Is the management stake continually allocated and redeemed b/c then  not true stakes and are simply company expenses?

• ROIC past and projections? Over 25%?

• If MKT share stability and profitability indicate the existence of c/a, the third step is to identify the source. Do dominant firms benefit from prop. tech or other cost advantages, is there a captive customer thanks to consumer habit formation, switching costs or search costs, are there economies of scale combined with at least some degree of cust. captivity?