Monopolists can lock in customers for life with personalized contracts
The article explores how a company can make the most of long-term relationships with customers by creating optimal contracts. By studying consumer preferences that change over time in a predictable way, the researchers found that the best contract is not fixed and remembers past interactions. Despite this complexity, the contract ensures that the right amount of goods is supplied efficiently, regardless of how consistent customer preferences are. Interestingly, even when customers are very predictable, the contract can still prevent renegotiation. These findings shed light on how companies should structure their production methods for the best results.