Warranty signalling and reputation

In this paper, we present a signalling-based explanation for the empirical phenomenon that a longer warranty may be offered by a product with lower qu ality. Our explanation hinges on differences in consumer knowledge about re liability of established and newer products. In a product market where a ne w entrant competes with an established product, we show that signalling beh avior leads to an outcome where the less reliable product may carry the lon ger warranty.