This paper examines the role of investment in entry-deterrence in a duopoly market. Avinash Dixit analyzes how an established firm can use pre-entry investment decisions to influence the post-entry game and deter potential entrants. The key idea is that an irrevocable investment allows the established firm to alter its post-entry marginal cost curve, thereby influencing the outcome of the post-entry game. The paper begins by discussing the complexities of entry in an industry from a game-theoretic perspective. It critiques the Bain-Sylos model, which assumes that the established firm will maintain the same output after entry as its pre-entry output. Dixit argues that this assumption is flawed, as the established firm may prefer to reduce output to accommodate entry or threaten to increase output to deter entry. However, the latter threat must be credible. Dixit introduces the concept of commitment through investment, where the established firm's pre-entry investment decisions can be seen as a commitment that affects the post-entry game. He shows that by choosing an appropriate level of pre-entry capacity, the established firm can influence the post-entry equilibrium. For example, if the established firm sets its capacity at a high level, it may deter entry by making it unprofitable for the entrant. The paper then considers different scenarios for the post-entry game, including Nash equilibrium, Cournot-Nash equilibrium, and Bertrand-Nash equilibrium. Dixit shows that the established firm can use its capacity choice to manipulate the initial conditions of the post-entry game, thereby influencing the outcome. The analysis is extended to consider different cost structures and the possibility of price-setting in the post-entry duopoly. Dixit concludes that the role of investment in entry-deterrence is to alter the initial conditions of the post-entry game to the advantage of the established firm. He argues that the established firm can use its capacity choice to influence the post-entry equilibrium, even if the post-entry game is played according to Nash rules. The paper also discusses the importance of credible threats and the role of investment in creating such threats.This paper examines the role of investment in entry-deterrence in a duopoly market. Avinash Dixit analyzes how an established firm can use pre-entry investment decisions to influence the post-entry game and deter potential entrants. The key idea is that an irrevocable investment allows the established firm to alter its post-entry marginal cost curve, thereby influencing the outcome of the post-entry game. The paper begins by discussing the complexities of entry in an industry from a game-theoretic perspective. It critiques the Bain-Sylos model, which assumes that the established firm will maintain the same output after entry as its pre-entry output. Dixit argues that this assumption is flawed, as the established firm may prefer to reduce output to accommodate entry or threaten to increase output to deter entry. However, the latter threat must be credible. Dixit introduces the concept of commitment through investment, where the established firm's pre-entry investment decisions can be seen as a commitment that affects the post-entry game. He shows that by choosing an appropriate level of pre-entry capacity, the established firm can influence the post-entry equilibrium. For example, if the established firm sets its capacity at a high level, it may deter entry by making it unprofitable for the entrant. The paper then considers different scenarios for the post-entry game, including Nash equilibrium, Cournot-Nash equilibrium, and Bertrand-Nash equilibrium. Dixit shows that the established firm can use its capacity choice to manipulate the initial conditions of the post-entry game, thereby influencing the outcome. The analysis is extended to consider different cost structures and the possibility of price-setting in the post-entry duopoly. Dixit concludes that the role of investment in entry-deterrence is to alter the initial conditions of the post-entry game to the advantage of the established firm. He argues that the established firm can use its capacity choice to influence the post-entry equilibrium, even if the post-entry game is played according to Nash rules. The paper also discusses the importance of credible threats and the role of investment in creating such threats.