Dynamic pricing and warranty policies for products with fixed lifetime

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

39 Scopus Citations
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Author(s)

  • Zhefang Zhou
  • Yanjun Li
  • Kwei Tang

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)940-948
Journal / PublicationEuropean Journal of Operational Research
Volume196
Issue number3
Publication statusPublished - 1 Aug 2009

Abstract

We consider a repairable product with known market entry and departure times. A warranty policy is offered with product purchase, under which a customer can have a failed item repaired free of charge in the warranty period. It is assumed that customers are heterogeneous in their risk attitudes toward uncertain repair costs incurred after the warranty expires. The objective is to determine a joint dynamic pricing and warranty policy for the lifetime of the product, which maximizes the manufacturer's expected profit. In the first part of the analysis, we consider a linearly decreasing price function and a constant warranty length. We first study customers' purchase patterns under several different pricing strategies by the manufacturer and then discuss the optimal pricing and warranty strategy. In the second part, we assume that the warranty length can be altered once during the product lifetime in developing a joint pricing and warranty policy. Numerical studies show that a dynamic warranty policy can significantly outperform a fixed-length warranty policy. © 2008 Elsevier B.V. All rights reserved.

Research Area(s)

  • Dynamic pricing, Dynamic warranty, Risk aversion

Citation Format(s)

Dynamic pricing and warranty policies for products with fixed lifetime. / Zhou, Zhefang; Li, Yanjun; Tang, Kwei.

In: European Journal of Operational Research, Vol. 196, No. 3, 01.08.2009, p. 940-948.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review