Identify the strategic effect of an incumbent firms investment strategy from Section 8.2 when the incumbent:

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Identify the strategic effect of an incumbent firm’s investment strategy from Section 8.2 when the incumbent:

• deters entry

• accommodates entry.

Discuss the differences between these two versions of the strategic effect of the incumbent’s investment strategy. In each case, whose profits is the incumbent interested in? If firms are competing in prices, is this strategic effect positive or negative?

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