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Consider a market in which an incumbent first chooses a capacity level. Having observed the capacity choice, the entrant choose entry and its capacity level.

Consider a market in which an incumbent first chooses a capacity level. Having observed the capacity choice, the entrant choose entry and its capacity level. If the entrant choose to enter, it has to pay a fixed cost of entry. Explain how the incumbent's capacity choice might vary with the level of this fixed cost.

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