This paper, titled "The Role of Investment in Entry-Deterrence," by Avinash Dixit, explores the strategic interactions between an established firm and a prospective entrant in an industry. The established firm's pre-entry decisions can influence the entrant's perception of the market, and the firm aims to exploit this to its advantage. The paper critiques the Bain-Sylos model, which assumes the established firm will maintain the same output after entry, and introduces the concept of advance commitments to make credible threats of predatory pricing or capacity expansion. Dixit's analysis is based on a simplified model where the dynamic aspects are ignored, focusing on constant profit streams. The established firm chooses a pre-entry capacity level, which can be increased but not reduced. If the entrant decides to enter, a duopoly equilibrium is achieved; otherwise, the established firm maintains a monopoly. The paper examines various scenarios, including Cournot and Bertrand equilibria, and the impact of different cost structures. Key findings include: 1. The established firm can alter the post-entry equilibrium by changing its initial conditions, such as capacity levels. 2. Capacity levels above a certain threshold are not credible threats of entry deterrence. 3. The established firm can use its capacity choice to manipulate the initial conditions of the post-entry game, even if the rules of the game are exogenous. 4. The paper classifies outcomes based on the profitability of the entrant in different scenarios, leading to different strategies for the established firm. The paper concludes that irrevocable commitments of investment can alter the initial conditions of the post-entry game, providing the established firm with a limited form of leadership. It also discusses extensions and modifications, including more flexible cost functions and price-setting scenarios, further supporting the idea that such investments can be used to deter entry.This paper, titled "The Role of Investment in Entry-Deterrence," by Avinash Dixit, explores the strategic interactions between an established firm and a prospective entrant in an industry. The established firm's pre-entry decisions can influence the entrant's perception of the market, and the firm aims to exploit this to its advantage. The paper critiques the Bain-Sylos model, which assumes the established firm will maintain the same output after entry, and introduces the concept of advance commitments to make credible threats of predatory pricing or capacity expansion. Dixit's analysis is based on a simplified model where the dynamic aspects are ignored, focusing on constant profit streams. The established firm chooses a pre-entry capacity level, which can be increased but not reduced. If the entrant decides to enter, a duopoly equilibrium is achieved; otherwise, the established firm maintains a monopoly. The paper examines various scenarios, including Cournot and Bertrand equilibria, and the impact of different cost structures. Key findings include: 1. The established firm can alter the post-entry equilibrium by changing its initial conditions, such as capacity levels. 2. Capacity levels above a certain threshold are not credible threats of entry deterrence. 3. The established firm can use its capacity choice to manipulate the initial conditions of the post-entry game, even if the rules of the game are exogenous. 4. The paper classifies outcomes based on the profitability of the entrant in different scenarios, leading to different strategies for the established firm. The paper concludes that irrevocable commitments of investment can alter the initial conditions of the post-entry game, providing the established firm with a limited form of leadership. It also discusses extensions and modifications, including more flexible cost functions and price-setting scenarios, further supporting the idea that such investments can be used to deter entry.