CUSTOMER COALITIONS, MONOPOLY PRICE-DISCRIMINATION AND GENERIC ENTRY DETERRENCE

This paper analyzes the interplay between a profit-maximizing monopolist and a set of consumers who are able to form coalitions that bargain with the monopolist and/or integrate into production. We show that the monopolist will deter the formation of these 'countervailing' coalitions through strategic selection of 'generic' limit price offers to each consumer. These limit prices are derived as subgame perfect equilibria in two alternative models of customer-monopoly interplay. In both models, price discrimination emerges in environments wherein it has previously been considered unprofitable. Welfare analysis of the equilibria demonstrates the procompetitive effects of potential customer coalitions and generally provides an efficiency-based motivation for a government ban on price discrimination.