Two-Dimensional Warranty Cost Analysis for Second-Hand Products

Abstract

In spite of the recent steady increase of the volume of the second-hand markets, often customers remain in doubt regarding the quality and durability of the second-hand products. Aiming to reduce and share this uncertainty, dealers offer warranty on their products. Offering warranty for second-hand products is a relatively new marketing strategy employed by dealers of used electronic equipment, furniture, automobiles, etc. Usually, for used products, the dealer's expected warranty cost is a function of product reliability, past age and usage, servicing strategy and conditions and terms of the warranty policy/contract. Sometimes the offered policy is limited by two parameters, typically the product age and usage after the sale. This type of policies is referred to as two-dimensional warranty policies. In this article, we develop statistical models for estimating the dealer's expected warranty cost for second-hand products sold with two-dimensional free repair/replacement warranty.

Keywords:

• Expected warranty cost
• Free repair/replacement
• Second-hand product
• Two-dimensional warranty
• Usage rate

Mathematics Subject Classification:

• Primary 47N30
• Secondary 60G20

Acknowledgments

The author gratefully acknowledges the helpful comments of the Associate Editor and the reviewer who provided valuable input and comments that contributed to improving the content and exposition of this article.