Pricing the razor: A note on two-part tariffs
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 monop...
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| Veröffentlicht in: | International journal of industrial organization 2015-09, Vol.42, p.19-22 |
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| container_title | International journal of industrial organization |
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| creator | Schmalensee, Richard |
| description | 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.
•This paper studies when a timeless razor-and-blades monopoly would sell razors below cost.•With a uniform distribution of parallel linear demands, it is never optimal to do so.•With two groups of consumers with non-crossing linear demands, it is sometimes optimal to do so. |
| doi_str_mv | 10.1016/j.ijindorg.2015.06.006 |
| format | Article |
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•This paper studies when a timeless razor-and-blades monopoly would sell razors below cost.•With a uniform distribution of parallel linear demands, it is never optimal to do so.•With two groups of consumers with non-crossing linear demands, it is sometimes optimal to do so.</description><subject>Blades</subject><subject>Demand curves</subject><subject>Demand functions</subject><subject>Durable goods</subject><subject>Game theory</subject><subject>Imperfect competition</subject><subject>Industrial organization</subject><subject>Monopolies</subject><subject>Price competition</subject><subject>Price discrimination</subject><subject>Price theory</subject><subject>Pricing policies</subject><subject>Razor</subject><subject>Shaving & shavers</subject><subject>Studies</subject><subject>Two-part tariff</subject><subject>Tying</subject><issn>0167-7187</issn><issn>1873-7986</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2015</creationdate><recordtype>article</recordtype><recordid>eNqFkM1LAzEQxYMoWKv_gix48bLrZD-SrCdL8QsKeug9ZLOTmqXd1CRV9K83Ur14EQYGHr_3mHmEnFMoKFB2NRR2sGPv_KoogTYFsAKAHZAJFbzKeSvYIZkkkOc8KcfkJIQBAOo0E5I_e6vtuMriC2ZefTp_nc2y0UXM3JjFd5dvlY9ZVN4aE07JkVHrgGc_e0qWd7fL-UO-eLp_nM8Wua4ZxBx7AzVTla5KrZApXmtmgEHdGYEouoaKknJRt50xtaCibRqoqEl6o1hnqim53MduvXvdYYhyY4PG9VqN6HZBUl7yGgQXIqEXf9DB7fyYjksUpY2oeAuJYntKexeCRyO33m6U_5AU5HeJcpC_JcrvEiUwmUpMxpu9EdO3bxa9DNriqLG3HnWUvbP_RXwBUVp8CA</recordid><startdate>20150901</startdate><enddate>20150901</enddate><creator>Schmalensee, Richard</creator><general>Elsevier B.V</general><general>Elsevier Sequoia S.A</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20150901</creationdate><title>Pricing the razor: A note on two-part tariffs</title><author>Schmalensee, Richard</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c460t-edf046a3c32cae6a74c6f0604bf8ee8b518217849bff4818955031fb515a6bf3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2015</creationdate><topic>Blades</topic><topic>Demand curves</topic><topic>Demand functions</topic><topic>Durable goods</topic><topic>Game theory</topic><topic>Imperfect competition</topic><topic>Industrial organization</topic><topic>Monopolies</topic><topic>Price competition</topic><topic>Price discrimination</topic><topic>Price theory</topic><topic>Pricing policies</topic><topic>Razor</topic><topic>Shaving & shavers</topic><topic>Studies</topic><topic>Two-part tariff</topic><topic>Tying</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Schmalensee, Richard</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>International journal of industrial organization</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Schmalensee, Richard</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Pricing the razor: A note on two-part tariffs</atitle><jtitle>International journal of industrial organization</jtitle><date>2015-09-01</date><risdate>2015</risdate><volume>42</volume><spage>19</spage><epage>22</epage><pages>19-22</pages><issn>0167-7187</issn><eissn>1873-7986</eissn><coden>IJIODY</coden><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.
•This paper studies when a timeless razor-and-blades monopoly would sell razors below cost.•With a uniform distribution of parallel linear demands, it is never optimal to do so.•With two groups of consumers with non-crossing linear demands, it is sometimes optimal to do so.</abstract><cop>Amsterdam</cop><pub>Elsevier B.V</pub><doi>10.1016/j.ijindorg.2015.06.006</doi><tpages>4</tpages></addata></record> |
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| ispartof | International journal of industrial organization, 2015-09, Vol.42, p.19-22 |
| issn | 0167-7187 1873-7986 |
| language | eng |
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| source | Elsevier ScienceDirect Journals Complete |
| subjects | Blades Demand curves Demand functions Durable goods Game theory Imperfect competition Industrial organization Monopolies Price competition Price discrimination Price theory Pricing policies Razor Shaving & shavers Studies Two-part tariff Tying |
| title | Pricing the razor: A note on two-part tariffs |
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