According to Dixit and Spence, the capacity of the incumbent firm must be large enough that the threat to produce an entry-preventing level of output is

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The capacity of the incumbent firm must be large enough to make the threat to produce an entry-preventing level of output credible. If the threat is not credible, then the potential entrant will not be deterred and may enter the market, leading to increased competition and potentially lower profits for the incumbent firm.

According to Dixit and Spence, the Capacity of the Incumbent