Establishing a consumer indifference function and its estimator for quantity purchases
Loading...
Files
Date
1983
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
This dissertation documents the development of a pricing scheme which relates unit purchase price to the reliability performance of the items purchased. Stochastic cost models are developed to derive a function, called the "indifference function," which specifies the unit purchase price the consumer will pay for the product, given its reliability performance. The consumer will have no preference as to the various combinations of the reliability performance and unit purchase price of the product represented by the indifference function. The stochastic cost models are derived from a situation where an item operates for a random interval, then is followed by a maintenance period of random cost and duration. This pattern is repeated until the item finally fails. The consumer receives a financial return over the operating life of the item. By applying renewal theory, the total expected return over the life time of the item is evaluated. This value is interpreted as the indifference function for the consumer. In the situation where the consumer is offered an optional full service warranty, which covers all the repair costs that occur during the warranty period, an indifference price at which the consumer is indifferent to whether to purchase the warranty or not is derived. In most cases, the indifference function is a function of unknown parameters and must be estimated. A complete estimation procedure is developed to obtain an estimator (in some cases, a uniformly minimum variance unbiased (UMVU) estimator) for the indifference function and the required curtailment number that will attain the desired levels of protection for the producer and the consumer.
Description
Typescript (photocopy).
Keywords
Industrial Engineering