Maintenance contracts for leased goods: their role in creating brand loyalty
Using a two-period switching cost model, this paper compares rental profit with sales profit in a framework in which duopolists produce horizontally differentiated durable goods. Rental firms use maintenance contracts that stipulate that repeat customers pay a lower fine per unit of damage than do those customers who switch to a rival firm. In the sales regime, firms give loyal customers a discount on their second period prices. If switching costs are zero, sales profit equals rental profit. For positive and identical switching costs, either regime can dominate. As the exogenous rate of depreciation falls, rental profit exceeds sales profit. Copyright © 2000 John Wiley & Sons, Ltd.
Volume (Year): 21 (2000)
Issue (Month): 7 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages S211-30, January.
- William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
- Mann, Duncan P., 1992. "Durable goods monopoly and maintenance," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 65-79, March.
- Gregory Goering & Michael Pippenger, 1996. "Durable Goods and Switching Costs," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(2), pages 201-212.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 729-749.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:21:y:2000:i:7:p:285-304. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.