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Warranties as a Signal of Quality

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  • Esther Gal-Or

Abstract

In this paper, the author demonstrates, through an example, that, in oligopolistic markets, it is only in special cases that warranties can serve as signals of quality. Warranties are perfect signals only in cases in which the intrinsic attributes of products are neither too clustered nor too widely spaced. Otherwise, multiple separating equilibria arise and the informational content of warranties is limited.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 22 (1989)
Issue (Month): 1 (February)
Pages: 50-61

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Handle: RePEc:cje:issued:v:22:y:1989:i:1:p:50-61

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Citations

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Cited by:
  1. Kaya, Ayça, 2009. "Repeated signaling games," Games and Economic Behavior, Elsevier, vol. 66(2), pages 841-854, July.
  2. Andrew F. Daughety & Jennifer F. Reinganum, 1994. "Product Safety: Liability, R&D and Signaling," Game Theory and Information 9403007, EconWPA, revised 30 Mar 1994.
  3. Rainer Kleber & Tobias Schulz & Guido Voigt, 2009. "Dynamic buy-back for product recovery in end-of-life spare parts procurement," FEMM Working Papers 09026, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  4. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989.
  5. Erevelles, Sunil & Roy, Abhik & Yip, Leslie S. C., 2001. "The universality of the signal theory for products and services," Journal of Business Research, Elsevier, vol. 52(2), pages 175-187, May.
  6. Tim Friehe & Tobias Tröger, 2012. "Sequencing of remedies in sales law," European Journal of Law and Economics, Springer, vol. 33(1), pages 159-184, February.
  7. Buehler, B. & Schuett, F., 2012. "Certification and Minimum Quality Standards when Some Consumers are Uninformed," Discussion Paper 2012-040, Tilburg University, Tilburg Law and Economic Center.
  8. Lupton, Sylvie, 2006. "Il était une fois la qualité," MPRA Paper 5, University Library of Munich, Germany.
  9. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
  10. Erling Eide, 2009. "Is the consumer directive advantageous for the consumers?," European Journal of Law and Economics, Springer, vol. 28(3), pages 289-307, December.
  11. Aidan Hollis, 1996. "Exclusivity Restrictions in Markets with Adverse Selection: The Case of Extended Warranties," Working Papers ecpap-96-03, University of Toronto, Department of Economics.
  12. Schotzko, R. Thomas & Wilson, Wesley W., 1995. "Price Adjustments In Cherry Markets," Journal of Food Distribution Research, Food Distribution Research Society, vol. 26(2), September.
  13. Brian S. Collins & Robin Mansell, 2004. "Cyber trust and crime prevention: a synthesis of the state-of-the-art science reviews," LSE Research Online Documents on Economics 4252, London School of Economics and Political Science, LSE Library.
  14. Ayça Kaya, 2005. "Repeated Signaling Games," CIE Discussion Papers 2005-07, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  15. Félix Muñoz-García & Heriberto González Lozano, 2009. "“Last-chance” sales: what makes them credible?," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 61-80, May.

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