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Discounted and Per Unit Costs of Product Warranty

Author

Listed:
  • John W. Mamer

    (Graduate School of Management, University of California, Los Angeles, Ca1ifornia 90024)

Abstract

This paper proposes a detailed model of the costs and benefits to producers and consumers of product warranty. Three common types of product warranty contract are considered. In addition, we explicitly allow for randomness in consumer repurchase behavior and for the possibility of an independent damage process acting on products sold under warranty. The cost criteria considered are discounted costs (profits) and per unit costs (and profits). The model is used to analyze the trade-off between warranty and quality control, and to illustrate the sensitivity of warranty costs to environmental variables.

Suggested Citation

  • John W. Mamer, 1987. "Discounted and Per Unit Costs of Product Warranty," Management Science, INFORMS, vol. 33(7), pages 916-930, July.
    • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:7:p:916-930
    DOI: 10.1287/mnsc.33.7.916
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    Citations

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    Cited by:

    1. Marlin U. Thomas & Sridevi S. Rao, 1999. "Warranty Economic Decision Models: A Summary and Some Suggested Directions for Future Research," Operations Research, INFORMS, vol. 47(6), pages 807-820, December.
    2. Shau‐Shiang Ja & Vidyadhar G. Kulkarni & Amitava Mitra & Jayprakash G. Patankar, 2002. "Warranty reserves for nonstationary sales processes," Naval Research Logistics (NRL), John Wiley & Sons, vol. 49(5), pages 499-513, August.
    3. Polatoglu, Hakan & Sahin, Izzet, 1998. "Probability distributions of cost, revenue and profit over a warranty cycle," European Journal of Operational Research, Elsevier, vol. 108(1), pages 170-183, July.
    4. Wang, Xin & Xie, Wei & Ye, Zhi-Sheng & Tang, Loon-Ching, 2017. "Aggregate discounted warranty cost forecasting considering the failed-but-not-reported events," Reliability Engineering and System Safety, Elsevier, vol. 168(C), pages 355-364.
    5. Y. Sarada & R. Shenbagam, 2022. "Approximations of availability function using phase type distribution," OPSEARCH, Springer;Operational Research Society of India, vol. 59(4), pages 1337-1351, December.
    6. Kunpeng Li & Suman Mallik & Dilip Chhajed, 2012. "Design of Extended Warranties in Supply Chains under Additive Demand," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 730-746, July.
    7. Lianmin Zhang & Lei Guan & Daniel Zhuoyu Long & Houcai Shen & Huajun Tang, 2023. "Who is better off by selling extended warranties in the supply chain: the manufacturer, the retailer, or both?," Annals of Operations Research, Springer, vol. 328(2), pages 1557-1583, September.
    8. Herbert Moskowitz & Young Hak Chun, 1994. "A poisson regression model for two‐attribute warranty policies," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(3), pages 355-376, April.
    9. Mitra, Amitava & Patankar, Jayprakash G., 1997. "Market share and warranty costs for renewable warranty programs," International Journal of Production Economics, Elsevier, vol. 50(2-3), pages 155-168, June.
    10. Chun, Young Hak & Tang, Kwei, 1995. "Determining the optimal warranty price based on the producer's and customers' risk preferences," European Journal of Operational Research, Elsevier, vol. 85(1), pages 97-110, August.
    11. Wu, Chin-Chun & Lin, Pei-Chun & Chou, Chao-Yu, 2006. "Determination of price and warranty length for a normal lifetime distributed product," International Journal of Production Economics, Elsevier, vol. 102(1), pages 95-107, July.
    12. Tian, Xiaoge & Chen, Weiming & Hu, Jinglu, 2023. "Game-theoretic modeling of power supply chain coordination under demand variation in China: A case study of Guangdong Province," Energy, Elsevier, vol. 262(PA).
    13. Kao, Edward P. C. & Smith, Marion Spokony, 1996. "Computational approximations of renewal process relating to a warranty problem: The case of phase-type lifetimes," European Journal of Operational Research, Elsevier, vol. 90(1), pages 156-170, April.
    14. Arda Yenipazarli, 2015. "A road map to new product success: warranty, advertisement and price," Annals of Operations Research, Springer, vol. 226(1), pages 669-694, March.

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