On the Relationship between Warranty and the Risk of Information Asymmetry

Abstract

Nowadays the product warranty is considered to be a valuable attribute of the product. It is a tool to enforce the competing power of the producer on the market place. There are two types of problems the product warranty addresses. Firstly, warranty deals with the malfunctioning of the product and, secondly, it addresses the information asymmetry, i.e., the misunderstanding and misinterpretation of the features and qualities of the product. The second aspect is of great importance in the light of indirect business communication, as in e-commerce. The aim of this paper is quantifying the risk of misunderstanding caused by information asymmetry and defining an appropriate product warranty policy, which depends on this risk.