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Barriers to entry and exit play crucial roles in market competition, affecting the potential for new firms to enter and existing firms to exit.
Barriers to entry are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market. These barriers can vary from easily surmountable costs to highly restrictive factors like limited resources such as radio frequencies.
Barriers to exit refer to obstacles that hinder a firm from leaving a market, often incurring financial costs. If exit barriers are significant, a firm may have to continue operating in the market to avoid higher exit costs.
Perfectly competitive markets have no barriers to entry and exit, allowing firms to freely enter or exit industries based on market profitability.
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