Cost analysis of two-attribute warranty policies based on the product usage rate

Abstract

In the so-called two-attribute warranty policy, two types of warranty criteria, such as the age and mileage of an automobile, are employed simultaneously to determine the eligibility of a warranty claim. The authors propose in the paper several decision models that estimate the expected total cost incurred under various types of two-attribute warranty policies. They also perform a sensitivity analysis to study the effects of several model parameters, such as the discount rate, the product usage rate, and the warranty terms, on the total warranty cost.