alt Hacker NewsThis 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.
The problem isn't that econ PhDs don't have classes giving more nuanced views of the world, but the fact that people spend so much time with “introductory economics” that even Nobel prices will make nonsensical arguments based on those flawed concepts.
It seems that spending several years working with models assuming that the earth is flat isn't being well compensated by one class on “imperfect flatness”.
(I've contemplated doing an econ PhD myself before changing course, and I've been exposed to much more than econ 101).