Research Reports from the Department of Operations
Document Type
Report
Publication Date
12-1-1984
Abstract
This paper provides a framework in which warranty policies for non-repairable items can be evaluated according to risk preferences of both buyers and sellers. In particular, a warranty price schedule is established such that sellers are indifferent among the policies. Given this schedule, a buyer's response is expressed by selecting the price-warranty combination that minimizes disutility. Within this framework, a warranty can be viewed as an instrument of risk management that can induce more sales and greater profitability. For given utility functions, analytical results for the development of a price schedule are developed. Numerical results illustrate the substitution effects between warranty terms, prices, and risk parameters.
Keywords
Operations research, Risk perception, Rebates, Consumer behavior
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 552
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Ritchken, Peter H. and Tapiero, Charles S., "Warranty Design Under Buyer and Seller Risk Aversion" (1984). Research Reports from the Department of Operations. 638.
https://commons.case.edu/wsom-ops-reports/638