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A "rational" mfr in a competitive market

Posted by Frihed89 (A) on May 14, 2009 at 09:08:18

In Reply to: Warranties on AN gear/Kits/Response Audio... posted by RGA on May 14, 2009 at 01:56:12:

would not increase their warranty if doing so did not boost expected revenues by an amount at least as much as the additional expected cost of providing the warranty. What one can infer is just that: increasing the warranty does not have as big effect on revenues as it does on costs.

So, either the gear is so reliable in buyers' minds, just as it is, that they are not willing to pay very much more for greater reliability, or this gear is so unreliable that no amount of warranty sugar will increase revenues enough to equal the costs of repairing all the bad stuff.

Which do you think it is?

If the market is not competitive, then AN's current practice would be consistent with a rational mfr. that controls a small niche market, or again the gear is so reliable and highly thought of that buyers are insensitive to increasing the warranty.

Maybe AN ought to decrease reliability and raise prices? Anyone with an economics degree want to suggest why? It's a prelim question.



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