ABSTRACT
In the preceding chapter, we studied warranty structures under which replacement items were provided free of charge on failure of an item covered under warranty. The basic notion of a pro-rata warranty, on the other hand, is that replacements are not provided free of charge, but are provided at a prorated cost, with the proration depending on the amount of usage or service time provided by the item prior to its failure. Service is ordinarily defined in terms of calendar time (e.g., “two-year limited warranty” on an automobile battery) or usage (40,000 miles on high-quality radial tires), but it may also be defined in other terms (e.g., “cycles,” for example, takeoffs and landings of aircraft). The rationale is that the customer has received some service from the item purchased, and hence should be willing to pay for the benefits obtained.
