Extra capacity can serve to intimidate and preempt competitors from entering the market.

Question

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When a company has extra capacity, it can lower prices or increase production without incurring additional costs, making it difficult for new competitors to enter the market. This is known as strategic capacity planning and is a common tactic used by established firms to maintain their market share and deter potential competitors.

Extra Capacity Can Serve to Intimidate and Preempt Competitors from Entering