Pricing the razor: A note on two-part tariffs

Richard Schmalensee

International Journal of Industrial Organization, 2015, vol. 42, issue C, 19-22

Abstract: The “razor-and-blades” pricing strategy involves setting a low price for a durable basic product (razors) and a high price for a complementary consumable (blades). In a timeless model, Oi (1971) showed that if consumers' demand curves differ and do not cross and unit costs are constant, a monopolist should always price blades above cost. This note studies the optimal razor price. With a uniform distribution of parallel linear demand curves it is never optimal to sell the razor below cost, while with two types of consumers and non-crossing linear demands it is optimal to do so for some parameter values.

Keywords: Two-part tariff; Tying; Price discrimination; Razor; Blades (search for similar items in EconPapers)
JEL-codes: D42 L11 L12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:42:y:2015:i:c:p:19-22

DOI: 10.1016/j.ijindorg.2015.06.006

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