A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy and announcing a large capacity expansion.

Question

Quizplus · Accepted Answer

This is true. By announcing a large capacity expansion, the firm can signal to potential competitors that they will not be able to gain a foothold in the market, as the incumbent firm already has a significant presence and is planning to grow even more. This can deter new entrants and give the incumbent firm a stronger market position.

A Firm May Preempt the Expansion of Competitive Firms by Using