How Does a Retailer's Service Plan Affect a Manufacturer's Warranty?
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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
Volume Number57
Issue Number4
PublisherINFORMS (Institute for Operations Research and Management Sciences)
Pages727 - 740
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