Evaluating Sustainable Competitive Advantages: Entry and Exit Barriers

Abstract

The authors discuss entry and exit barriers and their interaction as basic building blocks of a decision making process for evaluating competitive advantage of a business. While the concept of entry barriers is much discussed in the context of high quality businesses, the authors posit that exit barriers are also very important and in many cases, may cancel the positive effects of entry barriers. Through the examples of auto makers and airlines, the author show that when strong exit barriers coincide with a high fixed cost structure, the returns on capital frequently end up in poor territory.