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constitute a SPNE

12.BB.1. Figure is possible but not inevitable, and where point S lies to the right of point Z. This figure is a small modification of Figure 12.BB.8 in the textbook.

Geometrically it is clear that k 2: q (S) > q (Z) * k . Since entry is not it 1 1 z

blockaded┬╗ point Z is to the right of the incumbent's optimal monopoly point.

In words, k is higher than the monopoly output, but lower than k . Therefore, z it by the argument on p.427 of the book, the incumbent prefers to deter entry.

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