✦ LIBER ✦

Warranty design under buyer and seller risk aversion

✍ Scribed by Peter H. Ritchken; Charles S. Tapiero

Publisher: John Wiley and Sons
Year: 1986
Tongue: English
Weight: 515 KB
Volume: 33
Category: Article
ISSN: 0894-069X
DOI: 10.1002/nav.3800330410

No coin nor oath required. For personal study only.

✦ Synopsis

This paper provides a framework in which warranty policies for non-repairable items can be evaluated according to risk preferences of both buyers and sellers. In particular, a warranty price schedule is established such that sellers are indifferent among the policies. Given this schedule, a buyer's response is expressed by selecting the price-warranty combination that minimizes disutility. Within this framework, a warranty can be viewed as an instrument of risk management that can induce more sales and greater profitability. For given utility functions, analytical results for the development of a price schedule are developed. Numerical results illustrate the substitution effects between warranty terms, prices, and risk parameters.

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