../../../MY_DOC%7E1/MY_DOC%7E1/ECONNEWS/South-Western%20College%20Publishing%20-%20Economics  
For that Really, Really, Really, Really, Really Close Shave
Subject Product Innovation and Differentiation
Topic Oligopoly
Key Words Innovation; Pricing Power; Product Differentiation; Leader-Follower
News Story

In September, 2003, Schick will roll out a new four-blade razor for men, the Quattro. It is assuming that many men will be willing to pay $9 for a new razor that touts an even closer shave than with three blades. This is noteworthy because up to this point, Schick has simply followed Gillette in this market, content with copying the innovations of Gillette, and introducing lower-cost versions of its own. Schick believes that using four blades - making the head of the razor a half-inch in size - will be a significant product improvement.

Schick will also price the new Quattro at about the same price as Gillette's current 3-blade model, the Mach3. This is a significant step, given the money that goes into research and development; Gillette spent approximately $750 billion to develop the Mach3. Schick will not indicate how much it will spend to introduce its Quattro product, but insiders indicate that it will be at least $120 million, the amount spent to introduce the Xtreme3, their previous three-blade razor.

Gillette doubts that gains in closeness of the shave will be realized with the new product, and certainly gains diminish over time, as the more blades in the razor increase the risk of irritation and cuts.


(Updated November, 2003)

Questions
1.

What are the characteristics of this market and these two firms that allow you to determine from the article that the market for razor blades is oligopolistic?

2. How would you expect Gillette to respond in the near future? Why?
3. What economic principle is Gillette relying on in its criticism of the new Quattro?
Source "Schick Seeks New Edge With Four-Blade Razor," Charles Forelle, The Wall Street Journal, 12 August 2003.3.

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