The razor and blades model may be threatened if competition forces down the price of the consumable item. For such a market to be successful, the company must have an effective monopoly on the corresponding goods.
Specific examples Printers Computer printer manufacturers have gone through extensive efforts to make sure that their printers are incompatible with lower cost after-market ink cartridges and refilled cartridges. This is because the printers are often sold at or below cost to generate sales of proprietary cartridges which will generate profits for the company over the life of the equipment. In certain such as for the most inexpensive inkjet the cost of replacing disposable ink or toner may even approach the cost of buying new equipment with included cartridges. Methods of
vendor lock-in include designing the cartridges in a way that makes it possible to
patent certain parts or aspects, or invoking the
Digital Millennium Copyright Act to prohibit reverse engineering by third-party ink manufacturers. Another method entails completely disabling the printer when a non-proprietary ink cartridge is placed into the machine, instead of merely issuing an ignorable message that a non-genuine (yet still fully functional) cartridge was installed. In ''
Lexmark Int'l v. Static Control Components'' the
United States Court of Appeals for the Sixth Circuit ruled that circumvention of Lexmark's ink cartridge lock does not violate the DMCA. On the other hand, in August 2005,
Lexmark won a case in the United States that allowed them to sue certain large customers for violating their
boxwrap license.
Console video games Atari had a similar problem in the 1980s with
Atari 2600 games. Atari was initially the only developer and publisher of games for the 2600; it sold the 2600 itself at cost and relied on the games for profit. When several programmers left to found
Activision and began publishing cheaper games of comparable quality, Atari was left without a source of profit. Lawsuits to block Activision were unsuccessful. Atari added measures to ensure games were from licensed producers only for its later-produced 5200 and 7800 consoles. In more recent times,
video game consoles have often been sold at a loss while software and accessory sales are highly profitable to the console manufacturer. For this reason, console manufacturers aggressively pursue legal action against carriers of
modchips and
jailbreaks due to a belief that the resulting possibility of unauthorized or prohibited copying causes a loss in profits. Particularly in the
sixth generation era and beyond, Sony and Microsoft, with their
PlayStation 2 and
Xbox, had high manufacturing costs. As such, the companies sold their consoles at a loss and aimed to make a profit from game sales. In the following generation of consoles, both
Sony and
Microsoft have continued to sell their consoles, the
PlayStation 3 and
Xbox 360 respectively, at a loss, with the practice continuing with the concurrent
eighth and
ninth generations of console hardware.
Mobile phones Mobile handsets provided with monthly usage contracts are often provided at below cost price or even free of charge, particularly if obtained as an upgrade from an older model. The monthly contract funds the handset cost and in many countries, the contract will include a minimum contract term which has to be carried out. This will often work out to be more expensive than buying the phone outright.
Other goods Consumers may also find other uses for the subsidized product rather than use it for the company's intended purpose, which adversely affects revenue streams. This has happened to "free"
personal computers with expensive proprietary
Internet services and contributed to the failure of the
CueCat barcode scanner.
Affiliate marketing makes extensive use of this business model, as many products are promoted as having a "free" trial, that entice consumers to sample the product and pay only for shipping and handling. Advertisers of heavily promoted products such as
açaí berry targeting dieters hope the consumer will continue paying for continuous shipments of the product at inflated prices, and this business model has been met with much success. Websites specializing in
sampling and discounts have proven to be popular with economy-minded consumers, who visit sites which use product samples as link bait. The business model of these sites is to attract visitors that will click through to complete affiliate offers.
Tying Tying is a variation of razor and blades marketing that is often illegal when the products are not naturally related, such as requiring a bookstore to stock up on an unpopular title before allowing them to purchase a bestseller. Tying is also known in some markets as 'Third Line Forcing.' Some kinds of tying, especially by
contract, have historically been regarded as
anti-competitive. The basic idea is that consumers are harmed by being forced to buy an undesired good (the tied good) to purchase a good they actually want (the tying good), and so would prefer that the goods be sold separately. The company doing this bundling may have a significantly large market share so that it may impose the tie on consumers, despite the forces of market competition. The tie may also harm other companies in the market for the tied good, or who sell only single components. Another common example comes from how cable and satellite TV providers contract with content producers. The production company pays to produce 25 channels and forces the cable provider to pay for 10 low-audience channels to get a popular channel. Since cable providers lose customers without the popular channel, they are forced to purchase many other channels even if they have a very small viewing audience. ==See also==