(The) razor and blades pricing strategy with discriminative warranty policy

Abstract

Many of the products we see on the market consist of durable goods and its compatible consumables: a typical example is printers-and-toner cartridges. Companies that produce this kind of product sell consumables (toner cartridges) at a very high price to consumers who have purchased their durable goods (printers). Due to these characteristics, remanufactured consumables with low price and decent quality are targeting the niche market. In response to these circumstances, companies implement a discriminative warranty policy. The discriminative warranty policy is a policy that provides a free warranty service only to consumers who use genuine consumer goods. If you go to the official website of a leading printer manufacturer, you can easily find information that they don't offer free warranty service to consumers who have used remanufactured toner. In this paper, a model that reflects the discriminative warranty policy is used to explain the actual situation of selling genuine consumables at a very high price even in a competitive situation with remanufactured consumables. The paper also shows that, if the warranty service cost is relatively high, a manufacturer could reach higher profitability in the competitive consumable market than in the monopolistic consumable market. This result well explains the prevalent practice that many companies do not completely block the entry of remanufactured consumables into the consumable market.