An established firm is considering expanding its capacity to take advantage of a recent rapid growth in demand. It can do so in two ways.
It can purchase fungible, general-purpose assets that can be resold close to their original value, if their use in the industry proves unprofitable.
Or, it can invest in highly specialized assets that, once they are put in place, have no alternative uses and virtually no salvage value.
Assuming that each choice results in the same production costs once installed, under what choice is the firm likely to encounter a greater likelihood that its competitors will also expand their capacities?