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CIPS L5M6 Exam - Topic 2 Question 14 Discussion
Topic #: 2
High exit barriers in a marketplace mean that rivalry between suppliers is low. Is this statement TRUE?
The correct response is No -- rivalry between existing suppliers is high. Exit barriers refer to the difficulty suppliers face when attempting to leave a market or industry. These barriers may include high investment in specialised assets, contractual obligations, redundancy costs, or reputational damage. When suppliers are unable or unwilling to exit, they remain within the industry regardless of declining profitability. This forces them to compete aggressively to retain market share, which increases rivalry among existing firms.
Options A and B are incorrect because the question relates to rivalry, not directly to buyer or supplier power. Option D is also incorrect because exit barriers do not influence new suppliers entering; they affect current suppliers trying to leave.
A practical example is the oil and energy industry, where huge capital investments make it very costly to exit. Companies stay even during downturns, resulting in fierce rivalry.
[Ref: CIPS L5M6 Study Guide, p.114 -- Porter's Five Forces: Exit Barriers and Rivalry]
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