Service rivalry reshapes strategic interplay: Manufacturer encroachment and extended warranty provision under retailer-owned extended warranty

Yue Qi; Taofeng Ye; Guoqing Zhang; Yue Qi; Taofeng Ye; Guoqing Zhang

doi:10.3934/jimo.2026132

Journal of Industrial and Management Optimization

2026, Volume 22, Issue 8: 3668-3698. doi: 10.3934/jimo.2026132

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Research article

Service rivalry reshapes strategic interplay: Manufacturer encroachment and extended warranty provision under retailer-owned extended warranty

1.
Business School, Jiangsu Vocational College of Information Technology, Wuxi, China
2.
School of Economics and Management, Jiangsu University of Science and Technology, Zhenjiang, China
3.
Department of Industrial and Manufacturing Systems Engineering, University of Windsor, Windsor, Canada

Received: 19 May 2026 Revised: 03 July 2026 Accepted: 06 July 2026 Published: 13 July 2026
90B06, 91A80, 91B24

This paper studies a service rivalry setting in which the retailer is not a passive product reseller but an incumbent extended warranty (EW) provider. In this environment, a manufacturer must decide whether to open a direct product channel and whether to introduce its own EW, while its service offer competes with the retailer's pre-existing EW. We formulate a manufacturer-led Stackelberg model with four strategy regimes to examine whether manufacturer encroachment and manufacturer-provided EWs function as complementary or substitutive strategies, and how competition from a retailer-owned EW alters this relationship. The analysis shows that the retailer's EW provision fundamentally changes the logic of the manufacturer's two strategies. Encroachment does not necessarily promote EW provision; by raising direct channel operating pressure and intensifying product and service competition, it can lower the manufacturer's willingness to provide EWs. The reverse effect is also conditional: The manufacturer's EW provision encourages encroachment only when the EW selling cost is sufficiently low, but it discourages encroachment once the service cost erodes the channel's benefit. We further identify a cost threshold that separates complementarity from substitutability between encroachment and EW provision, and show how this threshold is reshaped by retailer-owned EWs, the manufacturer's service differentiation, and direct selling cost. The paper therefore extends the encroachment and EW literature from a manufacturer-centered service setting to a competitive service channel setting and provides pricing implications for both the manufacturer's and the retailer's EWs.
- extended warranty,
- manufacturer encroachment,
- retailer-owned service,
- service competition,
- dual channel
Citation: Yue Qi, Taofeng Ye, Guoqing Zhang. Service rivalry reshapes strategic interplay: Manufacturer encroachment and extended warranty provision under retailer-owned extended warranty[J]. Journal of Industrial and Management Optimization, 2026, 22(8): 3668-3698. doi: 10.3934/jimo.2026132

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Abstract

This paper studies a service rivalry setting in which the retailer is not a passive product reseller but an incumbent extended warranty (EW) provider. In this environment, a manufacturer must decide whether to open a direct product channel and whether to introduce its own EW, while its service offer competes with the retailer's pre-existing EW. We formulate a manufacturer-led Stackelberg model with four strategy regimes to examine whether manufacturer encroachment and manufacturer-provided EWs function as complementary or substitutive strategies, and how competition from a retailer-owned EW alters this relationship. The analysis shows that the retailer's EW provision fundamentally changes the logic of the manufacturer's two strategies. Encroachment does not necessarily promote EW provision; by raising direct channel operating pressure and intensifying product and service competition, it can lower the manufacturer's willingness to provide EWs. The reverse effect is also conditional: The manufacturer's EW provision encourages encroachment only when the EW selling cost is sufficiently low, but it discourages encroachment once the service cost erodes the channel's benefit. We further identify a cost threshold that separates complementarity from substitutability between encroachment and EW provision, and show how this threshold is reshaped by retailer-owned EWs, the manufacturer's service differentiation, and direct selling cost. The paper therefore extends the encroachment and EW literature from a manufacturer-centered service setting to a competitive service channel setting and provides pricing implications for both the manufacturer's and the retailer's EWs.

References

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