The Robustness of Warranty: Wholesale Pricing Contract vs Two-part Tariff

Abstract

Warranty service can effectively motivate the demands of customers, especially to the risk-averse ones. However, it remains some challenging issues to be further explored, e.g., Is it robust for warranty while implementing different types of pricing contracts(i.e., wholesale pricing and two-part tariff)? How will they affect the warranty as well as the performance of supply chain? In this paper, we focus on the two scenarios: the decentralized decisions under wholesale pricing contract and two-part tariff, then we compare the results with that of the benchmark--centralized decision. The analysis shows two important findings. First, the warranty is explicitly robust and independent of the pricing contracts. Second, supply chain can be coordinated by wholesale pricing contract in a certain condition. However, It could be coordinated by two-part tariff whenever the time. These observations suggest that manufacturers could keep the warranty unchanged and gain more by implementing an appropriate pricing contract.