Warranty Cost Models for Products Protected by Lemon Laws Considering Mutual Failure Interaction

Abstract

In this study, we develop warranty cost models for a warranted product that is also protected by lemon laws. The product is viewed as a multi-component system consisting of critical (C) and non-critical (NC) components. We model failure process of each type of components, which considers a bidirectional (or mutual) failure interaction between the C and NC components. Hence, each component has two types of failures -i.e., natural failure and induced failure. The product is declared a lemon if the recurrent failures of C or NC component occur - i.e., when the number of the C or NC component failures reaches the threshold value, k. If a lemon is declared, the manufacturer will provide either a refund or a replacement to the consumer. Then, we develop the warranty cost models for the two cases (i.e., refund and replacement cases) and find the optimal lemon law period that minimizes the expected warranty cost rate. The numerical examples are provided to illustrate the expected warranty cost and the optimal lemon law period.