Warranty Optimization in a Dynamic Environment

A product warranty is an agreement offered by a producer to a consumerto replace or repair a faulty item, or to partially or fully reimbursethe consumer in the event of a failure. Warranties are verywidespread and serve many purposes, including protection for producer,seller, and consumer. They are used as signals of quality andas elements of marketing strategies. In this study we review the notionof an online convex optimization algorithm and its variations,and apply it in warranty context. We introduce a class of profit functions,which are functions of warranty, and use it to formulate theproblem of maximizing the company's profit over time as an onlineconvex optimization problem. We use this formulation to present anapproach to setting the warranty based on an online algorithm withlow regret. Under a dynamic environment, this algorithm providesa warranty strategy for the company that maximises its profit overtime