This presentation by Patricia Bascunana-Ambros, OECD Competition Division, was made during the discussion “Barriers to exit” held at the 132nd meeting of the OECD Competition Committee on 4 December 2019. More papers and presentations on the topic can be found at oe.cd/bte.

1. Competition Committee
Barriers to Exit in Competition
Presentation by the Secretariat
4 December 2019
DAF / Competition Division- OECD

2. Barriers to Exit
2
Barriers to exit can be defined as obstacles that may force a firm to
continue operating in a market as the economic costs of leaving might be
higher than those incurred if it stays in the market.
An indicator of barriers to exit is the decline in firm dynamism which has
been steadily declining in many OECD countries.
Figure 1. Average trends in job reallocation, entry and exit rates from 2000 to 2015

3. Labor related
exit costs
Sunk costs
Regulatory exit
requirements
Government
interventions
(e.g. too-big-to-
fail firms)
Long-term
contracts
Bankruptcy
regimes
3
Types of barriers to exit
The point of interest with barriers to exit that have other policy goals is the
extend of such barriers in the market, and more specifically, whether they are
unnecessarily high.

4. 4
Impact on allocative efficiency,
competition and innovation
Overcapacity issues and
wasteful wars of
attrition
Incentives for firms to
consolidate or coordinate
behaviour to survive
Crisis cartels
Merger control - Failing
Firm Defense
Barriers to exit weaken the market discipline mechanisms of the competitive process,
which act to allocate resources to their most efficient use according to changing conditions.
Impacts from barriers to exit
Competitive distortions
from government aid
aimed to prevent exit
Shifts the burden of
structural adjustment to
changing market conditions
to other firms managing
without aid
Minimise competitive
distortions while
taking account of other
policy goals
Higher concentration
Potential reduction of
consumer welfare from
higher prices
Market investigation
Impact on type of
entry
Deters efficient and
innovative entry
Competition
enforcement and
advocacy

5. • How competition authorities consider barriers to exit in their
guidelines? Is there a need for greater transparency on how barriers
to exit are analysed and assessed?
• Competition enforcement policy can be also be under pressure to be
more lenient, in particular during periods of distress, but this might
not be the best long-term policy response? Competition enforcement
policy as a potential barrier to exit?
• How best can competition policy identify and reduce unnecessarily
high barriers to exit – the role of advocating transparency of policy
trade-offs, advising and collaborating with other government
agencies.
5
Initial points for the discussion