Charlie Munger: The Complete Investor (Columbia Business School Publishing)

by Tren Griffin

company in the Berkshire portfolio with network effect benefits; the more merchants that accept their card, the more valuable the service gets, and the more people who use the card, the more valuable the services are for merchants. Munger has said: It would be easier to screw up American Express than Coke or Gillette, but it’s an immensely strong business. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2000 A company having beneficial network effects is only one dimension that impacts profit. Sometimes, network effects exist but the market is small because it is a niche. Amazon’s market is massive, and that matters greatly in terms of the market capitalization it can generate. Some network effects are very strong and some are weak. Some companies have both demand-side and supply-side economies of scale. Amazon has both supply-side and demand-side economies of scale, and they reinforce each other. The more people who provide comments on Amazon, the more valuable it becomes to other users due to demand-side economies. Amazon also has huge advantages with their warehouses and the supply chain on the supply side.