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hi sir,
I have problem understanding the sentence from the answers of past paper Sep Dec 2016 Q1 b, Competitive rivalry in the industry, high exit barriers.
“When exit costs are high, companies hang on in the industry often resorting to extreme tactics which weaken the profitability of the industry as a whole.” I wonder the reason why. I am Very confused and I cannot figure it out.
Thanks a lot.Lets say that a business was allowed to build a factory on condition that if the factory was no longer used, the business was required to demolish it and to put the land back to its natural state.
That work could be very expensive, so the business might keep the factory going, perhaps making a small loss each year, just to avoid the high closure (exit) costs. If the business drops its prices to keep its product selling, there will be a knock-on effect on other businesses in that industry too.
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