Warranty signalling and reputation. (English) Zbl 1232.91414
Summary: 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.
MSC:
91B42 | Consumer behavior, demand theory |
91A80 | Applications of game theory |
91A35 | Decision theory for games |
90B60 | Marketing, advertising |