Arnold Kling  

How Electronics Retailers Make Money

The Smoot-Hawley Fence... BMI: Lessons from D&D...

The Washington Post says,

Neither Circuit City nor Best Buy discloses how much of its bottom line comes from extended warranty sales. But analysts have estimated that at least 50 percent and in some lean years 100 percent of profits at the electronics retailers come from extended warranty sales.

My guess is that the rest comes from mail-in rebates.

Thanks to Tyler Cowen for the pointer.

Comments and Sharing

CATEGORIES: Business Economics

COMMENTS (3 to date)
Duane Gran writes:

I see this as a form of subsidy. Enough people gamble on the odds that they will need to exercise the warranty and it keeps the prices low for others who gamble on the odds of the product lasting. Both sides get what they want.

Phil writes:

I think that's great. It means that I get all my stuff below cost, given that I never buy the extended warranty or neglect to mail my rebate form.

Thanks, nervous and lazy buyers!

Abby writes:

How often do you actually have to rely on a warranty for a product? I can understand getting a warranty and even extended warranty on "high dollar items," such as cars and even some home appliances. When it comes to getting a warranty on smaller items such as cell phones, I think it is a waste of money. Salespeople do a great job of convincing consumers that they need these warranties. For those of us who are less concerned with the possible risk involved with not buying the warranty, we can enjoy paying lower prices.

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