Two-Dimensional Warranty Cost Analysis for Second-Hand Products

Abstract

In spite of the recent steady increase of the volume of the second-hand markets, often customers remain in doubt regarding the quality and durability of the second-hand products. Aiming to reduce and share this uncertainty, dealers offer warranty on their products. Offering warranty for second-hand products is a relatively new marketing strategy employed by dealers of used electronic equipment, furniture, automobiles, etc. Usually, for used products, the dealer's expected warranty cost is a function of product reliability, past age and usage, servicing strategy and conditions and terms of the warranty policy/contract. Sometimes the offered policy is limited by two parameters, typically the product age and usage after the sale. This type of policies is referred to as two-dimensional warranty policies. In this article, we develop statistical models for estimating the dealer's expected warranty cost for second-hand products sold with two-dimensional free repair/replacement warranty.