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A Game of Competitive Investment:
Overcapacity and Underlearning
Jian Yang, Yusen Xia, and Junmin Shi
ABSTRACT We consider the situation in which a number of rms decide
their individual capacity investment levels. The total sum of these levels
determines the total return, which the rms share in proportion to their con-
tributions. Before their commitments, rms may spend efforts on learning
a size indicator of the market. Using this model, we can explain the overca-
pacity phenomenon that appeared time and again in numerous industries.
The competitive learning aspect of the situation sheds light on the chronic
neglect of due diligence w