Free Economics Dissertations - Volkswagen Uses A Combined System Of Full And Partial Warranty Depending On
Volkswagen uses a combined system of full and partial warranty depending on the age of the car. This suggests, in economic terms, that those cars over four years old are more likely to be ‘lemons’ than those under fours years of age. In reality, this reflects that cars become increasingly prone to breakdown with age, a fact accepted by most consumers.
In reference to the diagram in the previous section, Volkswagens warranty system would fall into both categories, depending on the age of the car. For cars of less that four years old, the situation would be represented by line CH VH, and for cars in excess of four years old, this would be represented by line CL VL. However, Volkswagen’s categories differentiate the market into two segments, and for a true assessment, Volkswagens warranty would need to be compared with other companies selling used cars either less than four years old or more than. A large company with an established reputation, such as Volkswagen, offering only limited warranty may appear more favourable in all instances than a local garage offering a full warranty.
Bibliography
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Rustichini, A. and Siconolfi, P. (2004), Efficient Equilibria in Economies with Adverse Selection, http://www.econ.brown.edu/fac/Sergio_Turner/workshop/Siconolfi.pdf [Accessed 13th April 2005]
Volkswagen Warranty (2005), http://www.volkswagen.co.uk/used_cars/warranty, http://www.volkswagen.co.uk/services/warranty, http://www.volkswagen.co.uk/services/approved_warranty, [Accessed 13th April 2005]
Wehrt, K. and Harz, H. (1999), 4700 Warranties, http://encyclo.findlaw.com/4700book.
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