Editing Price discrimination (section)

===Two-part tariff (razor and blades)===
The [[two-part tariff]] is another form of price discrimination wherein the seller charges a low (loss-making) initial fee in hopes of freezing consumer choice while charging a higher secondary fee for continuing to use the product. This pricing strategy yields a result similar to second-degree price discrimination. The two-part tariff increases welfare because the monopolistic markup is eliminated. However, an upstream monopolist may set higher secondary prices, which may reduce welfare.

An example of two-part tariff pricing is in the market for [[Razor|razors]].<ref>{{Cite journal |last=Hayes |first=Beth |date=1987 |title=Competition and Two-Part Tariffs |journal=Journal of Business |volume=60 |issue=1 |pages=41–54 |doi=10.1086/296384 |via=University of Chicago Press}}</ref> The customer pays an initial cost for the razor and then pays for replacement blades. This pricing strategy works because it shifts the demand curve to the right: since the customer has already paid for the initial blade holder and will continue to buy the blades as long as they are cheaper than alternatives.