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Warranties without Commitment to Market Participation

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  • Bigelow, John
  • Cooper, Russell
  • Ross, Thomas W

Abstract

The provision of product warranties when the exit of firms is possible is an example of a more general contracting proble m without full commitment. When firms cannot precommit to future mark et participation, they can exit if continued participation is not profitable, thereby avoiding outstanding warranty obligations. Incentives for market participation come from future profits that depend on future sales. The resulting intertemporal linkage between cohorts of consumers may create multiple, Pareto-ordered equilibria. The possibility of multiple equilibria is examined for alternative market structures as is the government's role in influencing the selection of an equilibrium. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Bigelow, John & Cooper, Russell & Ross, Thomas W, 1993. "Warranties without Commitment to Market Participation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 85-100, February.
  • Handle: RePEc:ier:iecrev:v:34:y:1993:i:1:p:85-100
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    Cited by:

    1. Francois Gourio, 2013. "Financial Distress and Endogenous Uncertainty," 2013 Meeting Papers 108, Society for Economic Dynamics.
    2. Cooper, Russell W. & Ross, Thomas W., 2001. "Pensions: theories of underfunding," Labour Economics, Elsevier, vol. 8(6), pages 667-689, December.
    3. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
    4. Russell Cooper, 2012. "Debt Fragility and Bailouts," NBER Working Papers 18377, National Bureau of Economic Research, Inc.

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