This. Businesses aren't usually “competiting” in the way microeconomics think they do.

Every business owner knows that a race to the bottom with other businesses in their market is going to ruin each other's life and they don't usually engage in this kind of practice (with the notable exception of people with lots of capital to wipe the competition out of the market then do a rug pull after the fact).

The goal of a business is never to capture their competitors market share, it's to make a decent profit at the end of the year so that their shareholders (or themselves, depending on the size and ownership structure) get the revenue they expect.

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.

As Peter Theil literally said, "Competition is for losers."