Consider a setting where an incumbent firm (firm 1) sinks capacity in Period 1, and a potential entrant (Firm 2) considers entry in Period 2 (which also involves investing in capacity. Industry inverse demand is given by, p(k1, k2), = 4 - (k1+k2), where ki, i = 1,2 are the two firms' capacity investments. Neither firm faces produces costs, but Firm 2 faces an entry cost of E>0 if it chooses to enter in Period 2. You may ignore time discounting.

(a) explain what is meant by the 'Bain-Sylos postulate'

(b) explain the concepts of blockaded, deterred and accommodated entry

(c) discuss the extent to which the above model provides support for the idea that incumbent monopolists can protect themselves from potential entrants.