University of Chicago Law Review
The razors-and-blades story offers a foundational understanding of a key area of economics and strategy: invest in an installed base by selling the razor handles at low prices or even giving them away, then sell the razor blades at high prices to justify the prior investment. Large chunks of modern technological life-from VCRs and DVD players to video game systems like the Xbox and now e-book readers-seem to operate subject to the same dynamics of razors-and-blades. The actual history of razors-and-blades is much richer than the standard story suggests. At the point that Gillette could most readily have played the strategy-from 1904 to 1921, during the period of the initial patents-it did not do so. The firm understood to have invented razors-and-blades as a business strategy did not play that strategy at the point that it was best situated to do so. It was only after the expiration of the patents that Gillette switched to something akin to razors-and-blades, and it did that only to match the market. With the expiration of the patents, Gillette seemingly no longer had a way to tie the blades to the handles and thus, at least on paper, seemed to have no good way to play razors-and-blades. Yet with the sale of razor sets to the US government during World War I and the jump in handle sales with the introduction of the low-price, old-style handle, Gillette's installed base jumped rapidly and the profits followed.
Randal C. Picker, "The Razors-and-Blades Myth(s)," 78 University of Chicago Law Review 225 (2011).