Game Theoretic Analysis of After-Sales Service in Two-Echelon Supply Chain with Warranty Sensitive Demand

Abstract

After-sales service contract is widely popular in business. Although both the cases of manufacturer offering warranty and retailer offering warranty are common in market, the differences between them have been few studied. In this paper, we build a two-echelon supply chain in which a manufacturer produces limit quality products and sells them to a retailer. To promote sales, the manufacturer or retailer offers a free-replacement warranty to the customers. Customer's demand is affected by the warranty length. We investigate the game relationships between the supply chain members. We find that the warranty length negatively relates to the product quality in both the manufacturer offering warranty case and the retailer offering warranty case. When retailer's profit margin is not low, the retailer offers a longer warranty than the manufacturer and vice versa. Profit of the supply chain is also analyzed along with a numerical study.