High exit barriers are most serious as a competitive threat when industry demand is declining.

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When industry demand is declining, companies are already under pressure to maintain their revenues and profits. In such a situation, high exit barriers make it difficult for companies to exit the market or divest their assets, which adds to their financial burden. Consequently, companies may continue to operate in the market despite unfavorable conditions, which can intensify competition and erode profitability. Thus, high exit barriers become a significant competitive threat when industry demand is declining.

High Exit Barriers Are Most Serious as a Competitive Threat