Warranty Signalling and Reputation

Management Science · 2001 · Volume 47 · Issue 9

Abstract

In this paper, we present a signalling-based explanation for the empirical phenomenon that a longer warranty may be offered by a product with lower quality. Our explanation hinges on differences in consumer knowledge about reliability of established and newer products. In a product market where a new entrant competes with an established product, we show that signalling behavior leads to an outcome where the less reliable product may carry the longer warranty.

Keywords

Marketing Strategy, Competition, Game Theory, Signaling, Warranty Policy

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