The process of exit is not always quick and is sometimes painfully slow
for the loss-making firms in the industry. The rate at which firms leave
unprofitable industries depends on how quickly their capital becomes
obsolete or becomes too costly to operate because of rising maintenance
costs as it ages. In many professional service industries, such as graphic
design or consulting, the physical capital is mostly office equipment, such
as computers, printers, and so on. This equipment becomes obsolete in
just a few years, and thus loss-making firms will tend to exit the industry
very quickly. In other industries, such as railways or shipping, the
physical capital takes much longer to wear out or become obsolete. The
result is that loss-making firms in these industries will remain in
operation for many years, as long as they continue to cover their variable
costs.
The longer it takes for firms’ capital to become obsolete or too costly to operate, the longer
firms will remain in the industry while they are earning economic losses.Oil tankers take a long time to become economically obsolete. A perfectly
competitive shipping company that is incurring losses but still covering its