- Barriers to exit
economics, barriers to exit are obstacles in the path of a firm which wants to leave a given marketor industrial sector. These obstacles often cost the firm financially to leave the market and may prohibit it doing so.
If the barriers of exit are significant; a firm may be forced to continue competing in a market as that is the least bad alternative.
Types of exit barrier
The factors that may form a barrier to exit include:
* High investment in non-transferable
fixed assets. This is particularly common for manufacturingcompanies that invest heavily in capital equipmentwhich is specific to one task.
redundancycosts. If a company has a large number of employees, employees with high salaries, or contracts with employees which stipulate high redundancy payments, then the firm may face significant cost if it wishes to leave the market.
* Other closure costs. Contract contingencies with
suppliers or buyers and any penalty costs incurred from cutting short tenancy agreements.
* Potential upturn. Firms may be influenced by the potential of an upturn in their market that may reverse their current financial situation.
As more firms are forced to stay in a market,
competitionincreases within that market. This negatively affects all firms in the market and profits may be lower than in a perfectly competitive market.
Switching barriers(or switching costs)
Barriers to entry
*Johnson G, Scholes K and Whittington R, (2006), "Exploring Corporate Strategy", Prentice Hall International (ISBN-10: 0-27371071-6)
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