EXIT BARRIERS AND VERTICAL INTEGRATION.

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Abstract
When exit barriers trap firms in an industry, the result is destructive competition and reduced profits (Harrigan, 1981; Porter, 1976). Mobility barriers often prevent firms from changing their strategic postures so as to serve new customers (Caves & Porter, 1976). For the purposes of this paper, the term exit barriers will refer to both mobility and exit barriers. High barriers of either type are likely to keep firms operating within an industry without changing their strategic posture even when they earn subnormal returns on their investments. Vertical integration, the in-house production of goods and services that could be purchased from outsiders, has been regarded as a major source of exit barriers (Porter, 1980). No one has established the relationship between integration and exit barriers empirically, however, primarily because of an absence of appropriate variables in existing data bases (Caves & Porter, 1976; Harrigan, 1980). Moreover, a precise way of identifying and estimating the dimensions composing vertical strategies was lacking until recently (Harrigan, 1983a). Consequently, only a partial model of the forces that raise exit barriers has been tested. This paper brings together questions concerning exit and mobility barriers with those concerning vertical integration strategies in order to explore whether and when vertical integration constitutes an exit barrier. By identifying how the operative forces interact, it suggests how firms might cope with situations in which vertical integration can raise exit barriers. If firms can lower the height of exit barriers, they can reposition themselves to serve more attractive market segments or to exit with relative ease.

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