Analysis of extended warranties for medical equipment: A Stackelberg game model using priority queues

Healthcare institutions make use of technology-intensive equipment that follows tight quality standards. These companies aim at ensuring service continuity and safety of patients. In this context, maintenance services are generally performed exclusively by the Original Equipment Manufacturer (OEM) because it detains the required expertise, tools and spare parts. Then, we here propose a model to analyze the interaction among hospitals and OEM. We consider the OEM can provide maintenance services for two different classes of hospitals, which have the option of either hiring an Extended Warranty (EW) or paying for each maintenance intervention on demand with or without priority. Class 1 customers are often large hospitals, whereas institutions of class 2 are generally small/medium ones, which have shorter budgets, and thus would choose a non-priority option. To that end, we adopt a Stackelberg game, where the OEM is the leader and the customer is the follower. Failures and repairs follow a 2-class G/M/1 priority queuing system. The OEM maximizes its expected profit by setting the EW and repair intervention prices, and selecting the optimal number of customers in each class. An application example is used to demonstrate the proposed model; a sensitivity analysis is also performed.