The Paradox of a Warranty: Can No Warranty Really Signal Higher Quality?

Abstract

Signaling theory predicts that the duration of warranty correlates positively to the perception of product quality. Longer warranty lengths would lead to more favorable product quality perceptions, which in turn would foster more favorable consumer evaluations. However, the handicap principle predicts that the absence of a warranty could actually increase consumer evaluations based on the premise that only the sellers that are very confident about the quality of their products would make such an offer. Through two studies, this research shows that the no-warranty condition can actually produce more favorable product evaluations and purchase intentions as opposed to a longer warranty offer.