Buyers and sellers motivate retailers to offer warranties

Reference no: EM13696176

Many retailers offer warranties on the goods they sell, whether they be electronic products, house ware predicts or cars.

1) What type of problems resulting from information asymmetries between buyers and sellers motivate retailers to offer warranties? Are these moral hazard or adverse selection problems?

2) If a consumer would never buy a retailer's product more than once, what would happen to the retailer's incentive to offer warranty? Would your answer change if consumer could find out about the quality of retailer's product before purchase?

3) Many retailers who include warranties with the products they sell also offer extended warranties which consumers can purchase at an extra cost. What type of information problem would an extended warranty be designed to correct?

Reference no: EM13696176

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