Comment by youainti

This is a perfect example of competition in microeconomics. If you've only been exposed to an introductory economics, you've missed out on a lot.

This type of situation sounds like an amalgamation of a few exam questions from my first year of an econ PhD. "Cheap talk in a Bertrand market with entry costs and capacity constraints" or something. No I haven't worked it out but my intuition is that it would predict exactly what was observed: the threat of a new entrant with enough capacity risks loosing your entire business so you invest to expand your capacity to prevent that entry.