Barriers to exit in competition

Most of the focus in relation to barriers has been on barriers to entry and their effects on competition. However, for competition to be effective there must also be firm exit. Barriers to exit, like barriers to entry, decrease the market discipline mechanisms of the competitive process to relocate resources from one market or firm to another according to changing conditions. This can lead to less efficient firms staying in the market. As a result, resources (both financial and human capital) are ‘trapped’ longer in existing firms instead of being relocated to their most efficient use. This can make it difficult for more efficient firms to expand and could crowd-out the growth of more innovative firms. Therefore barriers to exit can have an adverse effect on the level of competition, hinder innovation and change, be an important driver of productivity slowdown, and have an adverse impact on economic growth. In December 2019, the OECD held a roundtable to discuss what barriers to exit are, how they affect allocative efficiency, and what their impact on competition is. It also discussed how authorities consider barriers to exit in their enforcement and advocacy work and explored cases where barriers to exit were an important consideration to the case.