- Barriers to exit
In
economics , barriers to exit are obstacles in the path of a firm which wants to leave a givenmarket orindustrial 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 asset s. This is particularly common formanufacturing companies that invest heavily incapital equipment which is specific to one task.* High
redundancy costs. 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
supplier s 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.
Implications
As more firms are forced to stay in a market,
competition increases within that market. This negatively affects all firms in the market and profits may be lower than in a perfectlycompetitive market .See also
*
Switching barriers (or switching costs)
*Barriers to entry
*Market power References
*Johnson G, Scholes K and Whittington R, (2006), "Exploring Corporate Strategy", Prentice Hall International (ISBN-10: 0-27371071-6)
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