Abstract
This article examines the relationship between production capacity and the ongoing battle for market share. Many firms use market share as a performance indicator to measure how well they are doing in comparison to their competitors. However, capacity increases can increase the number of firms that regard the firm as a competitor, thereby expanding the firm's competitive arena and limiting the affect of any hoped‐for market share increase. Managers should evaluate the competitive response of a capacity increase, especially with firms that will likely become new competitors, in order to gain an accurate picture of the likely post‐increase scenario.