Dan Rasmussen: Moats Are A Useless Speculative Theory

Earlier this year in his interview on Real Vision, Dan Rasmussen explained why moats are a useless speculative theory. Here’s an excerpt from the interview:

Rasmussen: But I think more broadly this idea of moats or barrier to entry, we have to look at where it comes from. And it comes ultimately from antitrust theories. And it comes from this school of thinking that emerges from the general den of bad ideas, which is the business schools.

And they broadly think that an industry’s structure should dictate the conduct of the firms in the industry, which should dictate their performance. And even more broadly, a concentrated industry should have firms that have higher profit margins, right? I mean, if a monopoly can use its market power to make crazy profits, then something that has an 80%–

Host: They all want to be monopolies.

DR: –market share, 70% market share. And that was the idea of quality or moats that really has become popular. I think it was popularized by Buffett and Michael Porter. And I think the only problem with it is that it’s completely empirically wrong. I mean, there’s just no evidence for that. There’s no evidence that market share and profitability are related. There’s no evidence that that creates barriers to entry. It’s just all a bunch of useless speculative theory.

You can watch the entire interview here: