Guajardo, JoseCohen, Morris ANetessine, Serguei2023-05-222016-04-142016-07-012017-08-18https://repository.upenn.edu/handle/20.500.14332/34191We study the impact of service attributes (warranty length, after-sales service quality) on consumer demand in the U.S. automobile industry, examining the presence of complementarities/substitution between service attributes and product quality. Our results estimate a median willingness to pay for one year of a warranty of approximately $850, which is equivalent to 3.1% of the median vehicle price in our sample. We find that, for a car with median characteristics, the effect on consumer utility of a 1% price decrease is equivalent, all else being equal, to increasing product quality by 2.2%, and is in turn equivalent to increasing the warranty length by 8%. Our results also indicate that service attributes play a compensatory role with respect to product quality; i.e., the impact of warranty length and service quality on demand increases when product quality decreases. Conversely, both service metrics are complementary with respect to demand; i.e., the better the service quality, the higher the marginal effect of longer warranties. Our results thus imply that, in our period of analysis, warranties played a more important role for American firms than for foreign firms, consistent with the fact that American manufacturers exhibited lower product quality and higher service quality than non-American firms.https://doi.org/10.1287/mnsc.2015.2195after-sales servicesqualitycompetitiondemandeconometricsEconometricsFinance and Financial ManagementOperations and Supply Chain ManagementArticle