To study how a firm can capitalize on a
long-term customer relationship, we characterize the optimal contract
between a monopolist and a consumer whose preferences follow a Markov
process. The optimal contract is non-stationary and has infinite
memory, but is described by a simple state variable. Under general
conditions, supply converges to the efficient level for any degree of
types' persistence and along any history, though convergence is
history-dependent. In contrast as with constant types, the optimal
contract can be renegotiation-proof, even with highly persistent types.
These properties provide insights into the optimal ownership structure
of the production technology.