How does a retailer's service plan affect a manufacturer's warranty?

  • Jiang B
  • Zhang X
  • 45


    Mendeley users who have this article in their library.
  • 0


    Citations of this article.


A service plan is a type of optional warranty beyond manufacturers' base warranties that retailers offer to consumers. In this paper, we examine how a service plan affects the role played by a manufacturer's base warranty. Analysis shows that when consumers can assess product quality (i.e., the probability of product failure), the manufacturer's warranty is negatively affected by the presence of a service plan. In the presence of such a plan, a base warranty is offered only when the manufacturer is very cost-efficient in providing a warranty relative to the retailer. In this case, although the double-marginalization problem is aggravated, offering a (limited) base warranty reduces the total warranty cost in the channel and provokes the retailer into enlarging the service plan coverage. When consumers cannot assess product quality, a high-quality manufacturer is motivated to offer a base warranty to signal its quality. In the presence of a service plan, however, a very cost-efficient manufacturer is discouraged from doing so.

Author-supplied keywords

  • Distribution channels
  • Game theory
  • Service plans
  • Signaling
  • Warranty

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document


  • Bo Jiang

  • Xubing Zhang

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free