An examination of industry exit patterns

Abstract

Exit, like entry, must be unobstructed so that resource reallocation does follow changing market conditions. Indices of two potential barriers to exit are created in order to study their relationship to observed industry exit patterns. One, an index of the structural barrier, reflects the durability and specificity of the assets needed to produce the product. The other, an index of the corporate strategy barrier, reflects the complementarity of one product with other products the firms produce. The results strongly suggest that these barriers do impede the flow of resources out of certain industries.