Extended warranty of medical equipment subject to imperfect repairs: An approach based on generalized renewal process and stackelberg game

Abstract

Due to its advanced technology, maintenance services of healthcare equipment have been commonly executed by the original equipment manufacturer (OEM), which can be characterized as a monopolist. In this context, hospitals require high availability of their equipment at a reasonable servicing cost, whereas OEM aims to maximize its profit by selling extended warranty (EW) services for multiple consumers. The issue of drawing a maintenance contract between OEM and hospitals has already been treated by adopting a Stackelberg’s game. However, the “as good as new” and “as bad as old” assumptions are usually considered, which are rather difficult to observe in practice, especially for healthcare institutions and their technology-intensive equipment. Thus, we here adopt generalized renewal processes (GRP) for modelling imperfect repairs, and we develop a discrete event simulation method for finding the best strategies of each player: OEM sets the prices for EW and on-demand maintenance that optimize its profit, while hospitals choose which option they should hire. We also present an application example with real data gathered from an angiography device, which is used for mapping blood vessels and diagnosing heart diseases.