Quality signaling through warranty & brand reputation

When product quality is unobservable to consumers, a manufacturer can convey quality information using signals such as warranty and brand reputation. The purpose of this paper is to study the interaction between warranty, brand reputation, and product quality, and to examine alternative quality-signaling strategies. We model a monopolist who conveys unobservable product quality through signals of warranty and brand reputation. Heterogeneous consumers perceive the signals, form quality beliefs, and make purchase decisions. Consumers also update brand reputation perceptions after product consumptions. Under this framework, we study the monopolist´s optimal decisions of price, warranty, and quality in a one-period model.