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Barriers to Exit

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Barriers to Exit
Prohibitive costs associated with leaving a sector or market. For example, if a company operating in several sectors wishes to divest itself of its automotive interests, it may have a difficult time selling permanent assets or laying off workers because of high severance costs. Barriers to exit may discourage a company from divesting, or prevent it altogether. Barriers to exit are most common in sectors with high fixed costs.


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This is partly how cellular carriers "trap" their customers - by providing barriers to exit contracts or service plans that make it inconvenient to switch - even if the switch will save you $10 a month.
These include a dealer franchise system that prevents OEMs from selling and marketing directly to consumers, support requirements that act as barriers to exit from the market, and a regulatory regime so complex that Ford's director of Strategic Design Freeman Thomas exclaims: "I have to meet fewer regulations designing a chair or a building or the Space Shuttle than I have to change the seat design for a car
As a result, ineffective investments become, in effect, barriers to exit.
 
 
 
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