Drivers of Prices for Extended Product Warranties: An Extended Abstract

Cross-selling of extended warranties has become the norm in many durable consumer goods categories. These warranties typically cover parts and labor repair costs for durables for a pre-specified period beyond the standard product warranty. The cross-selling of extended warranties is now so prevalent that in certain product categories such as consumer electronics they account for the majority of retail profits. Margins are extremely high—in some cases in the 50–80 % range—compared to roughly 10 % for the typical product (Berner 2004). This has prompted the interest of public policy makers in some countries. In the UK, for instance, sellers of extended warranties are required to upload all offers to a central website, ensuring transparency to consumers.