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Warranty Signalling and Reputation

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  • Subramanian Balachander

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

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.

Suggested Citation

  • Subramanian Balachander, 2001. "Warranty Signalling and Reputation," Management Science, INFORMS, vol. 47(9), pages 1282-1289, September.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:9:p:1282-1289
    DOI: 10.1287/mnsc.47.9.1282.9783
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    References listed on IDEAS

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