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Assume that investments in capacity continuously reduce the

Suppose that products were differentiated and that in the second stage of the game, firms com- peted over prices. In the first stage, the incumbent firm can make investments in capacity. Assume that investments in capacity continuously reduce the incumbent's marginal cost. What happens to the incumbent's incentive to overinvest in capacity?

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Microeconomics: Assume that investments in capacity continuously reduce the

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