Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/29437
Title: How does a retailer's service plan affect a manufacturer's warranty?
Authors: Jiang, B
Zhang, X 
Keywords: Distribution channels
Game theory
Service plans
Signaling
Warranty
Issue Date: 2011
Publisher: Institute for Operations Research and the Management Sciences
Source: Management science, 2011, v. 57, no. 4, p. 727-740 How to cite?
Journal: Management science 
Abstract: Aservice 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.
URI: http://hdl.handle.net/10397/29437
ISSN: 0025-1909
EISSN: 1526-5501
DOI: 10.1287/mnsc.1110.1308
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