Impact of extended warranty service on product pricing in online direct retailers' competitive market

Abstract

In this paper, we consider a model composed of the three largest online direct retailers to investigate the impact of extended warranty service on product pricing. A single-period static game model and a dynamic game model with two delays are built. We discuss the optimal game strategies and dynamic evolution game behaviors of retailers and analyze the effects of warranty period and price adjustment speed on system stability. The result shows that the optimal extended warranty price, green degree, and extended warranty period lead to the biggest profits for the retailer. From the perspective of maximum profit, retailers should give priority to extending the warranty period, followed by extending the warranty price and extending the green degree of warranty. For the sake of system stability and player performance, retailers should take recent historical data as a reference, and a relatively slow price adjustment speed is needed. To better maintain the stability of the system, the delay feedback control method is adopted which can successfully control the instability of the system.