Durable Goods and Switching Costs

A simple two–period switching cost model is developed and analyzed assuming durable output. The analysis indicates that many of the conventional managerial implications of the switching cost literature need not hold if products are durable. In particular, the model indicates that managers of durable goods firms that lease or rent output may wish to decrease their customer base (provide service to only a subset of the experienced customers) in future periods, in contrast to the non–durable goods case where the number of customers served is the same. Moreover, the model shows that the optimal behavior of sellers of durable products depends critically upon their commitment ability with buyers, and outlines the conditions under which a manager selling output may rationally expand their customer base (i.e. sell to new customers in a future period).