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A Stackelberg Game Theory Approach to Optimize Warranty Length, Upgrade Level and Sale Price for Risk-Averse Buyers of Second-Hand Products

Baghdadi, E. and Shafiee, M. (2019) A Stackelberg Game Theory Approach to Optimize Warranty Length, Upgrade Level and Sale Price for Risk-Averse Buyers of Second-Hand Products. In: Beer, Michael and Zio, Enrico, eds. Proceedings of the 29th European Safety and Reliability Conference. Research Publishing, Singapore, pp. 762-768. ISBN 978-981-11-2724-3. (doi:10.3850/978-981-11-2724-3_0701-cd) (Access to this publication is currently restricted. You may be able to access a copy if URLs are provided) (KAR id:87429)

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Customers are often uncertain about the quality and durability of used or second-hand products. In order to reduce the customers’ uncertainly, the dealers are currently carrying out some upgrade actions as well as offering reasonable warranties for second-hand products before releasing them to the market. Applying excessive upgrades and/or offering long warranty periods may cause the prices to be uncompetitive within the second-hand product markets. Therefore, it is crucial for the dealers to optimize the upgrade strategy, warranty policy and selling price of second-hand products. This paper presents a Stackelberg game theory model to determine the optimal upgrade level, warranty length and sale price for second-hand products in the case when the customers are risk-averse. The conflict between the customers’ expected costs and the dealer’s expected profit associated with a second-hand product sold with one-dimensional warranty and post-warranty contact will be modeled. The Karush–Kuhn–Tucker (KKT)’s optimality condition of the lower level problem is used to solve the model. Finally, a numerical example is provided to illustrate the proposed model and a sensitivity analysis is conducted to assess the effects of model parameters on the optimal problem solution.

Item Type: Book section
DOI/Identification number: 10.3850/978-981-11-2724-3_0701-cd
Uncontrolled keywords: Second-hand product, game theory, one-dimensional warranty, reliability, post-warranty, risk-aversion, non�homogeneous Poisson process (NHPP).
Subjects: H Social Sciences > HF Commerce > HF5351 Business
T Technology > TJ Mechanical engineering and machinery
Divisions: Divisions > Division of Computing, Engineering and Mathematical Sciences > School of Engineering and Digital Arts
Depositing User: Mahmood Shafiee
Date Deposited: 02 Apr 2021 19:41 UTC
Last Modified: 18 Mar 2022 23:11 UTC
Resource URI: (The current URI for this page, for reference purposes)
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