A decision model for adopting an extended two-dimensional warranty considering different maintenance policies with variable customer's behavior

Abstract

In this paper we study the opportunity provided by adopting a two-dimensional extended warranty for the buyer as well as for the consumer of randomly failing products. The buyer has to decide to pay or not for the extended warranty when purchasing the product. The total expected cost incurred by each side during the product's life cycle is expressed in order to determine the maximum extra cost the consumer should pay and the minimum price at which the manufacturer should sell the extended warranty. This is done under different options in terms of maintenance strategies adopted during the product's lifecycle.