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Consumer Markets for Warranties

Schwartz, Alan and Wilde, Louis L. (1982) Consumer Markets for Warranties. Social Science Working Paper, 445. California Institute of Technology , Pasadena, CA. (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20171002-131706662

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Abstract

This paper considers markets for warranties when consumers are imperfectly informed about both product and warranty prices and about which firms sell with warranties and which firms sell without warranties. We characterize necessary and sufficient conditions for existence of the various equilibrium configurations of price and warranty coverage that can arise in two paradigm cases; when all consumers prefer warranties and when none do. Our results suggest that firms will exploit imperfect information by charging noncompetitive prices as well as by offering less than ideal warranty coverage, and that the former practice may be more serious in many markets than the latter.


Item Type:Report or Paper (Working Paper)
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http://resolver.caltech.edu/CaltechAUTHORS:20171115-162132895Related ItemPublished Version
Alternate Title:Product Quality and Imperfect Information
Additional Information:Research for this paper was supported by NSF Grant #SES 81-11708. This paper benefited considerably from comments received at workshops held at the California Institute of Technology, the University of Chicago, Northwestern University, and Stanford University. Published as Schwartz, Alan, and Louis L. Wilde. "Product quality and imperfect information." The Review of Economic Studies 52.2 (1985): 251-262.
Group:Social Science Working Papers
Subject Keywords:Consumer prices, Consumer equilibrium, Consumer preferences, Imperfect information, Market prices, Comparative advantage, Demand, Zero profit condition, Consumer information, Sufficient conditions
Record Number:CaltechAUTHORS:20171002-131706662
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20171002-131706662
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81953
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:04 Oct 2017 19:26
Last Modified:16 Nov 2017 00:36

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