How Does a Retailer's Service Plan Affect a Manufacturer's Warranty?
AbstractA service plan is a type of optional warranty beyond manufacturers' base warranties that retailers offer to consumers. In this paper, we examine how a service plan affects the role played by a manufacturer's base warranty. Analysis shows that when consumers can assess product quality (i.e., the probability of product failure), the manufacturer's warranty is negatively affected by the presence of a service plan. In the presence of such a plan, a base warranty is offered only when the manufacturer is very cost-efficient in providing a warranty relative to the retailer. In this case, although the double-marginalization problem is aggravated, offering a (limited) base warranty reduces the total warranty cost in the channel and provokes the retailer into enlarging the service plan coverage. When consumers cannot assess product quality, a high-quality manufacturer is motivated to offer a base warranty to signal its quality. In the presence of a service plan, however, a very cost-efficient manufacturer is discouraged from doing so. This paper was accepted by Preyas Desai, marketing.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 57 (2011)
Issue (Month): 4 (April)
service plans; warranty; signaling; distribution channels; game theory;
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.