The Razors-and-Blades Myth(s)

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 ebook readers - seem to operate subject to the same dynamics of razors and blades.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1676444