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In this paper we focus on two types of risks, the risk of malfunctioning of a product quantified by its reliability, and the risk of misunderstanding the features and qualities of a product while deciding whether to buy it. The later risk is caused by the information asymmetry, which is a natural property of any communication process. We discuss the relationship between these risks and product warranty. We begin with an overview of warranties from the decision-makers' viewpoint. We elaborate on the purposes, legalities, and types of warranties and follow with a summary of mathematical models and concepts for quantifying the financial implications of warranties of malfunctioning. Further, we propose a model for quantifying the risk of misinforming and elaborate on the relationship between this risk and product warranty.
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1. Introduction
The success of a business deal, involving two parties, a seller and a buyer, depends on various factors, which can be divided into two major groups. The first group consists of factors, which are properties of the environment in which the seller-buyer relationship takes place, such as IT, logistic, financial infrastructures, government regulations, etc. The second group consists of factors, which are properties of the interpersonal relationship between the two parties, such as efficiency and effectiveness of the communication process, trust and confidence, content, and acceptance of the exchanged messages, etc.
Product warranty, as a risk-sharing mechanism, affects the business transactions in two aspects: first, by providing a legal frame of the deal, and second, by enhancing the trust between the parties. The two sources of risk that warranty covers are:
* the risk of malfunctioning of the product and
* the risk of making a wrong purchase decision while buying the product.
The first type of warranty is well represented by the slogan "if the product fails free of charge repair or replacement" , whereas the second type of warranty is summarized by "if not fully satisfied - money back guaranteed" . Nowadays, most of the studies are related to the risk of malfunctioning of the product and related warranty modeling is well represented in the literature. At the same time, lately, due to the increased volume of the indirect commerce, the impact of the risk of misinforming on the...