Optimal extended warranty strategy considering channel perception and endogenous quality

Abstract

Extended warranties (EWs) are common in online sales, available from various providers. Manufacturers are typically perceived as better repairers, making their EWs more valuable than retailers'. We explore four cases: no provider (Model N), manufacturer‐provided (Model M), retailer‐provided (Model R), and dual‐provider (Model B). Initially, we analyze exogenous quality, then consider endogenous quality with variable failure rates (Models VN, VM, VR, and VB). While product demand is consistent, EW demand varies across models. Dual‐channel EWs (Model B/VB) maintain manufacturer EW demand but reduce retailer EW demand. They increase profits under exogenous quality but may not under endogenous quality.