Analysis of Supply Chain Extended Warranty Service Modes Based on Product Quality

Abstract

Abstract: Considering the important impact of product quality on supply chain extended warranty (EW), this paper takes the quality as an endogenous variable, and develops three Stackelberg game models, i.e., model of no EW, model of EW provided by manufacturers and model of EW provided by retailers. The optimal solutions of each model are analyzed and compared. The research shows that: both the product quality levels and the product demands are higher when EW exists than when no EW exists. Both retailers and manufacturers can get more profits from each other's EW. In most cases, EW provided by retailers can get higher product quality levels, product demands and EW demands. From the perspective of retailers, who is the favorable EW provider depends on the EW cost coefficient ratio between manufacturers and retailers, the correlation coefficient between the product failure rate and product quality, etc. From the perspective of manufacturers, it is optimal for manufacturers to offer EW by themselves when manufacturers' EW costs have a greater advantage than that of retailers. Otherwise, it is optimal for manufacturers to ask retailers to offer EW.

Key words: product quality, extended warranty service, retailer, manufacturer, Stackelberg game

Zhang Yongfen, Wei Hang. Analysis of Supply Chain Extended Warranty Service Modes Based on Product Quality[J]. Management Review, 2021, 33(2): 278-288.

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