A Simple Model of Reliability, Warranties, and Price-Capping

Donald A. R. George
Additional contact information
Donald A. R. George: Management School & Economics, University of Edinburgh, U.K.

International Journal of Business and Economics, 2006, vol. 5, issue 1, 1-16

Abstract: The paper presents a model of reliability which captures the process by which reliability is actually determined more accurately than the conventional analysis. In contrast to that conventional analysis, which is based on the characteristics approach, the model of this paper defines reliability as the objective probability of product failure, not as a characteristic of individual goods. Reliability, thus defined, is treated as a choice variable of the firm. The resulting model is applied to a monopolist subject to a price cap. The monopolist can vary reliability and the terms of a warranty or compensation deal in response to price-capping. The monopoly outcome, price-capped monopoly outcome, and Pareto-efficient outcome are compared. The model provides a theoretical explanation of some empirical results in the literature on electricity regulation.

Keywords: reliability; warranties; price-capping (search for similar items in EconPapers)
JEL-codes: L15 L51 M21 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.05-1/pdf/vol_5-1-1.pdf (application/pdf)
https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.05-1/abstract/01.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijb:journl:v:5:y:2006:i:1:p:1-16

Access Statistics for this article

International Journal of Business and Economics is currently edited by Hsiang-Tsai Chiang (Editor-in-Chief), Chiung-Ju Huang (Editor-in-Chief), Feng-Jyh Lin (Associate Editor), Tzu-Ching Weng (Associate Editor), Hsin-Yi Huang (Managing Editor) and Szu-Hsien Ho (Managing Editor)

More articles in International Journal of Business and Economics from School of Management Development, Feng Chia University, Taichung, Taiwan Contact information at EDIRC.
Bibliographic data for series maintained by Szu-Hsien Ho ().