In a two period model of strategic entry deterrence where the incumbent firm moves before the entrant by installing capacity for production, Dixit (1980) argued that in a (perfect) equilibrium excess capacity would not be observed, contradicting Spence's (1977) result on the same issue. In this note, we show that Dixit may not always remain true when we allow for demand uncertainty.
Poddar, S. (2003). Excess capacity: A Note. Keio Economic Studies, 40(1), 75-83.
Keio Economic Society