Pricing the razor: A note on two-part tariffs

B-Tier
Journal: International Journal of Industrial Organization
Year: 2015
Volume: 42
Issue: C
Pages: 19-22

Score contribution per author:

2.011 = (α=2.01 / 1 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

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.

Technical Details

RePEc Handle
repec:eee:indorg:v:42:y:2015:i:c:p:19-22
Journal Field
Industrial Organization
Author Count
1
Added to Database
2026-01-29