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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
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