How Does a Retailer's Service Plan Affect a Manufacturer's Warranty?
Publication in refereed journal

CUHK Authors
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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.
All Author(s) ListJiang B, Zhang XB
Journal nameManagement Science
Year2011
Month4
Day1
Volume Number57
Issue Number4
PublisherINFORMS (Institute for Operations Research and Management Sciences)
Pages727 - 740
ISSN0025-1909
eISSN1526-5501
LanguagesEnglish-United Kingdom
Keywordsdistribution channels; game theory; service plans; signaling; warranty
Web of Science Subject CategoriesBusiness & Economics; Management; MANAGEMENT; Operations Research & Management Science; OPERATIONS RESEARCH & MANAGEMENT SCIENCE

Last updated on 2021-26-02 at 00:10