Resource title

High quality sellers and warranties: sorting customers and getting a fair price at the same time

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This paper considers a situation where a high quality seller needs warranty policy to play these roles simultaneously. There are many signalling mechanisms available to sellers including branding, reputation, and advertising. Yet all of these alternatives are expensive, take time and are relatively inflexible. In situations where sellers ar local, under-capitalised, and need the flexibility to make different signals for multiple products, warranty policy is an efficient and effective option to provide credible information to buyers. Frequently, when a high quality seller needs warranty policy to play a signalling role, he faces a heterogenous market where there are profits to be made by selling different lengths of coverage to different customes. Markets that fit this description include used durable goods, notably vehicles, appliances, and industrial equipment. This paper considers the decision process of high quality seller when he wishes to use warranties in this manner and identifies his equilibrium strategies.

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en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp1999/99-81.pdf

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Copyright INSEAD. All rights reserved