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In this paper, the author demonstrates, through an example, that, in oligopolistic markets, it is only in special cases that warranties can serve as signals of quality. Warranties are perfect signals only in cases in which the intrinsic attributes of products are neither too clustered nor too widely spaced. Otherwise, multiple separating equilibria arise and the informational content of warranties is limited.
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Esther Gal‐Or (1989) studied this question.
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