Companies facing greater exit barriers find it harder to reduce capacity, and face a greater threat of severe price competition.

Question

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Exit barriers refer to the costs or difficulties associated with exiting a particular market or industry. If a company faces high exit barriers, such as significant sunk costs or long-term contracts that bind them to a market, it becomes harder for them to reduce capacity in response to declining demand or changing market conditions. This can lead to excess supply and increased competition, which can lead to price wars and other competitive pressures that can hurt the company's profits and viability in the long run. Hence, companies facing greater exit barriers find it harder to reduce capacity and face a greater threat of severe price competition.

Companies Facing Greater Exit Barriers Find It Harder to Reduce