User:JenBarros
Implications
[edit]Due to the inability to exit the market without suffering loss, firms choose to stay in a market. This inability to leave the market leads to increased competition within that market. This negatively affects all firms in the market and profits may be lower than in a perfectly competitive market.
Example
[edit]Barriers to exit are especially high in the airline industry. Airplanes are specialized assets, used only by the airline industry. Demand for airline travel due drastically decreases, due to Covid-19. However, most airline companies could not exit the industry due to the the inability to offload these major specialized assets. Therefore, many airline companies operated at low profit or at a profit loss.