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Durable-Goods Warranties and Social Welfare

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  • Atsuo Utaka

Abstract

In this article, I investigate the effect warranties have on durable-goods markets. Many if not most goods that are sold with a warranty are durable goods; thus, it is extremely important to consider the role of warranties in a durable-goods setting. This article analyzes the signaling role of warranties by embedding a warranty into a framework of durable-goods monopolists. I investigate the monopolist's decision regarding what level of reliability he should offer for his products and whether he should offer to repair them. It is shown that the warranty solves the moral hazard problem of whether more reliable products should be provided. Remarkably, if a warranty can be offered, asymmetric information can improve social welfare. Copyright 2006, Oxford University Press.

Suggested Citation

  • Atsuo Utaka, 2006. "Durable-Goods Warranties and Social Welfare," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 508-522, October.
    • Handle: RePEc:oup:jleorg:v:22:y:2006:i:2:p:508-522
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    File URL: http://hdl.handle.net/10.1093/jleo/ewj020
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    Cited by:

    1. Tsvetanov, Tsvetan & Miceli, Thomas J. & Segerson, Kathleen, 2021. "Products liability with temptation bias," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 76-93.
    2. Utaka, Atsuo, 2008. "Pricing strategy, quality signaling, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 878-888, July.
    3. Pu-Yan Nie, 2012. "Maintenance Commitments for Monopolized Goods," Prague Economic Papers, Prague University of Economics and Business, vol. 2012(1), pages 18-29.
    4. Chen Jin & Luyi Yang & Cungen Zhu, 2023. "Right to Repair: Pricing, Welfare, and Environmental Implications," Management Science, INFORMS, vol. 69(2), pages 1017-1036, February.
    5. Joseph Guiltinan, 2009. "Creative Destruction and Destructive Creations: Environmental Ethics and Planned Obsolescence," Journal of Business Ethics, Springer, vol. 89(1), pages 19-28, May.

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