Cost Sharing Warranty Policies for Second‐hand Products

Warranties for second-hand products are becoming more important as consumers have started demanding protection against poor quality second-hand products and the high cost of product failures occurring shortly after purchase. In response to this consumer demand for protection, public policy makers have begun enacting laws requiring dealers to offer warranties and effectively service warranty claims. This is now apparent throughout the market place for cars, consumer durables and electrical and electronic goods. As a result, dealers of second-hand products need to do a proper cost analysis of alternative warranty policies before deciding on a warranty policy to be offered with the sale of a particular item. This paper deals with three new cost sharing warranty policies for second-hand products. Stochastic models have been developed and analysed for the cost of these warranty policies when offered with the sale of second-hand products. International Federation of Operational Research Societies 2001.