In an intensely competitive market, one way by which manufacturers attract consumers to their products is by providing warranties on the products. Consumers are willing to purchase a high-priced product only if they can be assured about the product's reliability. A longer warranty period usually indicates better reliability. However, offering an unlimited warranty is unrealistic because maintaining such a policy needs very high cost. In this article, we investigate a decision problem under the warranty which is a combination of free-replacement, and pro-rata policies. We use a Bayesian approach to determine the optimal warranty lengths. The Rayleigh distribution is employed to describe the product lifetime. An example with real data is presented for illustration.
['Shuo-Jye Wu', 'Syuan-Rong Huang']
Optimal Warranty Length for a Rayleigh Distributed Product With Progressive Censoring