Note—Prediction Intervals for Warranty Reserves and Cash Flows

Patankar, Jayprakash G.; Worm, George H.

doi:10.1287/mnsc.27.2.237

Cited by 36 publications

(6 citation statements)

References 2 publications

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“…We also assume a quadratic cost, kt 2 2 , that depends on the length of the extended warranty. This assumption is consistent with findings in the literature that the number of product failures increases exponentially over time (e.g., Anderson (1977) and Patankar and Worm (1981)).…”

Section: The Costssupporting

confidence: 92%

Should a retailer sell its own extended warranties or resell those from the manufacturer when confronting supplier encroachment?

Chai

Yan

et al. 2020

Journal of the Operational Research Society

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Due to fierce competition in the product market under conditions of supplier encroachment, many brand name retailers, including Sears, Best Buy, and Circuit City, depend on the extended warranty contracts that they sell along with the products. The distribution of extended warranties through an intermediary can be characterized in terms of two basic forms. A large proportion of retailers sell their own extended warranty, whilst others choose to resell the extended warranty provided by upstream agents. Several questions arise from these conditions. How will optimum decisions vary under different strategic choice? Is it profitable for a retailer to engage in selling extended warranties? And finally, which strategy is more profitable for related players? We answer these questions using a game theoretic model where the retailer has the flexibility to choose between offering its own extended warranties (Model ER) or reselling extended warranties provided by a manufacturer (Model EM). Our analysis reveals that it is indeed a profitable business for both parties when the retailer engages in selling extended warranty, irrespective of whether they are owned by the retailer or by the manufacturer. Surprisingly, we find that, when marketing cost of the extended warranty is high, the retailer benefits more from reselling the extended warranty, a strategy that is always beneficial for the manufacturer. Put differently, when marketing cost of the extended warranty is high, reselling extended warranties from the manufacturer can secure Pareto improvements. However, when marketing cost of the extended warranty is not pronounced, a preference confliction arises between both parties: The retailer prefers to sell its own extended warranty, while the manufacturer would be fond of the other one. Extending both models to the case where the manufacturer encroaches into retail market with selling both products and extended warranty reveals that the preference confliction between both parties is quite robust.

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Section: The Costssupporting

confidence: 92%

Should a retailer sell its own extended warranties or resell those from the manufacturer when confronting supplier encroachment?

Chai

Yan

et al. 2020

Journal of the Operational Research Society

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“…Patankar and Worm (1981) computed prediction intervals for the total warranty costs. Balcer and Sahin (1986), Sahin and Polatlioglu (1996), and Polatlioglu and Sahin (1998) studied the moments and probability distribution of warranty costs.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Cash Management of Warranty Reserves

Gurgur

2011

The Engineering Economist

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The objective in warranty reserve management is to cover contingent liabilities that arise from warranty obligations. Maintaining excess reserves would cause opportunity cost, whereas depleting the reserve would necessitate finding emergency funds. In this article we propose a policy rule to guide cash management of warranty reserves for an infinite horizon that involves periodic reviews. At the beginning of each period the decision maker determines how much to add to or subtract from the fund and how much to contribute after each sale. Numerical examples show how the optimal control variables change in response to change in problem parameters.

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“…Menke [22] proposed a similar model for irrepairable products with exponentially failure times. Amato and Anderson [1] extended this model to include discounted costs and other reserving strategies incorporating various conditions of failure times followed by Pantankar and Worm [26], Ritchken et al [28], Tapiero and Posner [34], and Thomas [36].…”

Section: Background On Product Warrantiesmentioning

confidence: 99%

Engineering Economic Decisions and Warranties

Thomas

2005

The Engineering Economist

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Note—Prediction Intervals for Warranty Reserves and Cash Flows

Cited by 36 publications

References 2 publications

Should a retailer sell its own extended warranties or resell those from the manufacturer when confronting supplier encroachment?

Should a retailer sell its own extended warranties or resell those from the manufacturer when confronting supplier encroachment?

Dynamic Cash Management of Warranty Reserves

Engineering Economic Decisions and Warranties

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