Question: Explain the limit pricing theory. Using a modified Stackelberg model, explain under which conditions an incumbent firm may successfully deter entry by over-investing in capacity.

Explain the limit pricing theory. Using a modified Stackelberg model, explain under which conditions an incumbent firm may successfully deter entry by over-investing in capacity. Explain why, in deterring entry, an incumbent firm may be better off with less flexibility ("burning one's bridge").

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