Fighting collusion by permitting price discrimination

- We investigate whether a ban on price discrimination facilitates collusion.
- A deviation from the cooperative action is more tempting under price discrimination.
- A ban on price discrimination makes a collusive outcome “more likely”.

We investigate the effect of a ban on third-degree price discrimination on the sustainability of collusion. We build a model with two firms that may be able to discriminate between two consumer groups. Two cases are analyzed: (i) Best-response symmetries so that profits in the static Nash equilibrium are higher if price discrimination is allowed. (ii) Best-response asymmetries so that profits in the static Nash equilibrium are lower if price discrimination is allowed. In both price discrimination scenarios, firms' discount factor has to be higher in order to sustain collusion in grim-trigger strategies than under uniform pricing.