Gillette introduced the first twin-blade shaving razor in 1971. It proved to be a extremely popular. The product
earned very large profits for Gillette for quite a few years. However, despite Gillette’s introduction in the 1990’s of many variations on this multiple-blade razor, there were many other versions and designs available from many companies, including Schick, Bic, and a host of private-label store-brand versions. By 2004, Gillette’s profits and stock price had declined significantly and in 2005 Proctor Gamble Co. bought them.
With only the information given above, an economist would probably explain the drop in Gillette’s profits as follows:
a. Gillette must have experienced an increase in some important cost of production, resulting in a drop in profits
b. The government has taxed away Gillette’s excess profits.
c. Proctor Gamble manipulated the market with advertising so as to be able to buy Gillette.
d. Gillette’s high profits and success with the multi-blade design attracted many copy-cat products from other firms, increasing price competition.