IDEAS home Printed from https://ideas.repec.org/a/bpj/jossai/v3y2015i1p59-67n6.html
   My bibliography  Save this article

Designing the Optimal Extended Warranty Price with Indirect Network Effect

Author

Listed:
  • Tao Na

    (School of Management, Xi’an Jiaotong University, Xi’an710049, China)

  • Zhang Sheng

    (School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an710049, China)

Abstract

In the situation of indirect network effect, this paper mainly studies the optimal extended warranty price. First, the characteristics of the extended warranty price are discussed. Next, the optimal extended warranty price model is advanced. From the model, the authors can draw that the influence factors mainly include the producer and consumers’ risk preferences, the incompatible degree of the producer’s maintenance technology, the extended warranty period, the producer and consumers’ per-occasion maintenance cost. Finally, the authors carry the simulation method to indicate their influence relation. The results have theoretical significance for the automobile producer to ensure the optimal extended warranty price.

Suggested Citation

  • Tao Na & Zhang Sheng, 2015. "Designing the Optimal Extended Warranty Price with Indirect Network Effect," Journal of Systems Science and Information, De Gruyter, vol. 3(1), pages 59-67, February.
    • Handle: RePEc:bpj:jossai:v:3:y:2015:i:1:p:59-67:n:6
    DOI: 10.1515/JSSI-2015-0059
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/JSSI-2015-0059
    Download Restriction: no
    File URL: https://libkey.io/10.1515/JSSI-2015-0059?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. repec:bla:jemstr:v:4:y:1995:i:1:p:33-53:a is not listed on IDEAS
    2. Chen, Zhiqi & Ross, Thomas W., 1994. "Why are extended warranties so expensive?," Economics Letters, Elsevier, vol. 45(2), pages 253-257, June.
    3. Padmanabhan, V, 1995. "Usage Heterogeneity and Extended Warranties," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 33-53, Spring.
    4. V. Padmanabhan & Ram C. Rao, 1993. "Warranty Policy and Extended Service Contracts: Theory and an Application to Automobiles," Marketing Science, INFORMS, vol. 12(3), pages 230-247.
    5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    7. Nancy A. Lutz & V. Padmanabhan, 1995. "Why Do We Observe Minimal Warranties?," Marketing Science, INFORMS, vol. 14(4), pages 417-441.
    8. Price, Lydia J. & Dawar, Niraj, 2002. "The joint effects of brands and warranties in signaling new product quality," Journal of Economic Psychology, Elsevier, vol. 23(2), pages 165-190, April.
    9. Geoffrey Heal, 1977. "Guarantees and Risk-Sharing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 549-560.
    10. Chun, Young Hak & Tang, Kwei, 1995. "Determining the optimal warranty price based on the producer's and customers' risk preferences," European Journal of Operational Research, Elsevier, vol. 85(1), pages 97-110, August.
    11. Zhi-Sheng Ye & D.N. Murthy & Min Xie & Loon-Ching Tang, 2013. "Optimal burn-in for repairable products sold with a two-dimensional warranty," IISE Transactions, Taylor & Francis Journals, vol. 45(2), pages 164-176.
    12. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 239-255, Summer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lei, Yong & Liu, Qian & Shum, Stephen, 2017. "Warranty pricing with consumer learning," European Journal of Operational Research, Elsevier, vol. 263(2), pages 596-610.
    2. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
    3. Junhong Chu & Pradeep K. Chintagunta, 2009. "Quantifying the Economic Value of Warranties in the U.S. Server Market," Marketing Science, INFORMS, vol. 28(1), pages 99-121, 01-02.
    4. Jianhua Ma & Xingzheng Ai & Wen Yang & Yanchun Pan, 2019. "Decentralization versus coordination in competing supply chains under retailers’ extended warranties," Annals of Operations Research, Springer, vol. 275(2), pages 485-510, April.
    5. Bo Jiang & Xubing Zhang, 2011. "How Does a Retailer's Service Plan Affect a Manufacturer's Warranty?," Management Science, INFORMS, vol. 57(4), pages 727-740, April.
    6. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, November.
    7. Marlin U. Thomas & Sridevi S. Rao, 1999. "Warranty Economic Decision Models: A Summary and Some Suggested Directions for Future Research," Operations Research, INFORMS, vol. 47(6), pages 807-820, December.
    8. Li, Kunpeng & Chhajed, Dilip & Mallik, Suman, 2005. "Design of Extended Warranties in Supply Chains," Working Papers 05-0128, University of Illinois at Urbana-Champaign, College of Business.
    9. Subramanian Balachander, 2001. "Warranty Signalling and Reputation," Management Science, INFORMS, vol. 47(9), pages 1282-1289, September.
    10. Dror Etzion & Aviad Pe'er, 2014. "Mixed signals: A dynamic analysis of warranty provision in the automotive industry, 1960–2008," Strategic Management Journal, Wiley Blackwell, vol. 35(11), pages 1605-1625, November.
    11. Kunpeng Li & Suman Mallik & Dilip Chhajed, 2012. "Design of Extended Warranties in Supply Chains under Additive Demand," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 730-746, July.
    12. Aidan Hollis, 1996. "Exclusivity Restrictions in Markets with Adverse Selection: The Case of Extended Warranties," Working Papers ecpap-96-03, University of Toronto, Department of Economics.
    13. Lázár Ede, 2014. "Quantifying the Economic Value of Warranties: A Survey," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 2(1), pages 75-94, October.
    14. Padmanabhan, V, 1995. "Usage Heterogeneity and Extended Warranties," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 33-53, Spring.
    15. Cao, Zixia, 2022. "Brand equity, warranty costs, and firm value," International Journal of Research in Marketing, Elsevier, vol. 39(4), pages 1166-1185.
    16. Roland Kirstein & Annette Kirstein, "undated". "Europäischer Verbraucherschutz – Ausdruck grenzenloser Regulierungswut oder sinnvoller Schutz für Käufer? Erkenntnisse aus einem Laborexperiment," German Working Papers in Law and Economics 2006-1-1160, Berkeley Electronic Press.
    17. David Hakes & Dongsoo Shin, 2008. "Warranties as a device to extract rent from low-risk users of a product," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 1-7.
    18. Anthony Dukes & Yi Zhu, 2019. "Why Customer Service Frustrates Consumers: Using a Tiered Organizational Structure to Exploit Hassle Costs," Marketing Science, INFORMS, vol. 38(3), pages 500-515, May.
    19. Lutz, Nancy A. & Padmanabhan, V., 1998. "Warranties, extended warranties, and product quality," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 463-493, July.
    20. Lianmin Zhang & Lei Guan & Daniel Zhuoyu Long & Houcai Shen & Huajun Tang, 2023. "Who is better off by selling extended warranties in the supply chain: the manufacturer, the retailer, or both?," Annals of Operations Research, Springer, vol. 328(2), pages 1557-1583, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:jossai:v:3:y:2015:i:1:p:59-67:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.