Your premise is that if market power exists then market power is the problem rather than price discrimination. The issue is that price discrimination isn't possible without market power. Its presence implies that the company both is capable of and is overcharging the people coerced into the higher price tier.
> That I suppose "market power" implies monopoly
This is not an argument you make explicitly, but it's something readers commonly assume and my point is to highlight that companies successfully engaged in price discrimination can and do have market power even if they don't have a full monopoly.
> Of course it was. I acknowledged as much! I quite literally said the example doesn't generalize. The example serves to illustrate a 'there exists' claim. I felt a concrete example would be easier to follow than some kind of generalized model.
And I'm providing the 'there exists' claim for the alternative, to demonstrate that price discrimination can be (and often is) detrimental to customers without providing any countervailing benefit to any of them.
> The obvious observation we can make is that such competitive dynamics imply that no one would make any profit!
Profit doesn't really work that way. For example, if a company takes investment and uses it to buy a building to operate out of, the money not paid as rent to a landlord is added to the investor's profit, but if the company takes less investment and instead pays rent, the same money is counted as operating costs. Likewise, if you develop software needed before you can start operating and you take investment to pay for it, the net returns are called profit, but if you take a bank loan to pay for it then the interest on the loan is counted as operating costs again. The interest rate you'd pay the bank would even be proportional to the risk you'd fail, unless you post collateral, for which you'd need an investor.
So a company that didn't take any investment and operated entirely by renting everything, taking loans and using off-the-shelf software instead of developing anything in-house wouldn't be expected to make any profits in a perfectly competitive market -- and there would also be no investors to pay any profits to. Profit in companies that take investment would still be present and equal the cost (time value) of the assets bought with the money, but in a perfectly competitive market this would exactly equal the risk-adjusted market rate of return in the overall capital markets.
The distinction in uncompetitive markets is that profit exceeds that amount. (Or at least can; a market can be uncompetitive and then the companies become inefficient from lack of competitive pressure and waste the money they extract from customers instead of returning it to investors.)
It's true that "perfectly" competitive markets don't exist in the same sense that perfect anything doesn't exist, but this is splitting hairs. A gold coin might be .999 gold and you can say that it isn't perfect but you can still distinguish it from a wooden nickel.