Essays on Extended Warranties for Durable Goods Public Deposited

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  • March 20, 2019
Creator
  • Lee, Hyeong-Tak
    • Affiliation: Kenan-Flagler Business School
Abstract
  • Most durable goods come bundled with limited-term manufacturer-backed warranties at no additional cost to the consumer. Through the 1990s and early 2000s, the movement towards increased quality in manufacturing led to greater reliability in durable goods and correspondingly saw drastic expansion in the manufacturer warranties offered to consumers. At the same time extended warranties continued to be aggressively marketed by the downstream retailer to durable-goods buyers. In 2012 alone, consumers spent $14.7 billion on extended service contracts. Extended warranties are optional and need to be purchased at an additional cost. Consumers purchase extended warranties to insure themselves against the risk of product failure after the manufacturer warranty expires. The extant literature is silent on how the provisioning of manufacturer warranties and the market for extended warranties interact with each other. This doctoral dissertation addresses this research gap in the empirical context of the U.S. automobile industry. In Essay 1, I investigate the effect of upstream changes in manufacturer warranties (either expansion or contraction) on downstream retailer outcomes. That is, how do such changes in coverage of manufacturer warranties impact the purchase rates of extended warranties? How do the resulting changes in extended-warranty purchase rates vary across products and consumers? What is the net impact of the changes on the retailers’ financial performance? In Essay 2, I investigate the effect of upstream changes in manufacturer warranties on auto buyer's decision to purchase extended warranties and her choice of extended warranties. Specifically, how do such changes in coverage of manufacturer warranties differentially impact the auto buyer's purchase of extended warranties and the type of extended warranties they purchase? How do the manufacturer-induced changes impact extended-warranty premiums paid by these auto buyers? What is the net impact of the changes on the retailer's profits? The econometric models advanced in this thesis yield valuable managerial insights on how the markets for manufacturer warranties and extended warranties interact through the choices made by auto buyers and their corresponding implications on the financial performance of auto dealers. I hope this dissertation spawns new ideas for future empirical research on the market for warranties.
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  • In Copyright
Advisor
  • Jindal, Pranav
  • Grewal, Rajdeep
  • Steenkamp, Jan-Benedict
  • Kushwaha, Tarun
  • Venkataraman, Sriram
  • Chintagunta, Pradeep
Degree
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2017
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