CUSTOMER COALITIONS, MONOPOLY PRICE-DISCRIMINATION AND GENERIC ENTRY DETERRENCE

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