A comparison of adaptive and stationary repair-cost limit criteria for a producer's warranty

A producer sells a product together with a warranty valid fora specified duration.Whenever the product fails during the warrantyperiod, the producer is responsible for making the product functional,either by replacing or repairing the equipment,according towhether the anticipated repair cost exceeds or does not exceeda specified repair-cost limit. It is assumed that repairs areminimal repairs, and that the distribution of repair costs isknown, as is the time-to-failure distribution of the product.In this paper, we compare two models in discrete time. The firstone involves an adaptive repair-cost limit which is set dynamicallyaccording to the age of the product, and the length of warrantyremaining. The second model assumes a constant or stationaryrepair-cost limit throughout the warranty period. Empiricalresults are summarized.