Journal
MANAGEMENT SCIENCE
Volume 47, Issue 9, Pages 1282-1289Publisher
INST OPERATIONS RESEARCH MANAGEMENT SCIENCES
DOI: 10.1287/mnsc.47.9.1282.9783
Keywords
marketing strategy; competition; game theory; signaling; warranty policy
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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.
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