High exit barriers can cause a company to remain in an industry even though the returns on its invested capital are low or negative.

Question

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High exit barriers make it difficult for a company to leave an industry, even if the returns on investment are low or negative. This could be due to factors such as high fixed costs, long-term contracts, or specialized assets. As a result, companies may choose to stay in the industry rather than incur the costs associated with exiting, leading to a situation where returns on invested capital remain low.

High Exit Barriers Can Cause a Company to Remain in an Industry