Resource title

Simultaneous signalling and screening with warranties (RV of 2001/07/MKT)

Resource image

image for OpenScout resource :: Simultaneous signalling and screening with warranties (RV of 2001/07/MKT)

Resource description

It is well known that sellers can use warranties to screen consumers and increase profits. The ability of warranties to signal is also well accepted. This paper considers a situation where a high quality seller needs warranty policy to do both. Using an analytical model, the objective is to identify the optimal strategy for a high quality seller who offers a base warranty and optional extended warranty for aproduct where product quality is not observable to buyers. The author finds that signalling can limit the ability of a seller to screen especially when buyers are willing to pay a significant premium for higher quality. To signal, the seller generally lenthens base warranties and shortens optional coverage making the bundles for each type of buyer more and more similar. The author also provides an empirical application of the model in the Toronto used car market.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2002/2002-29.pdf

Resource license

Copyright INSEAD. All rights reserved