Warranty cost models for a repairable multi-component product protected by Lemon laws with failure interaction

This study develops warranty cost models for repairable products subject to Lemon Laws, encompassing Critical and Non-Critical components forming a multi-component system. Failures can arise naturally or be induced by other components (i.e., failure interaction), defining a lemon if recurrent failures reach a threshold (k) during the warranty period. A lemon declaration triggers a refund or replacement by the manufacturer. Four warranty cost models are proposed from the manufacturer’s standpoint, considering failure mechanisms. Increasing failure thresholds in the warranty scheme substantially decreases warranty cost rates. For instance, a threshold (k) of 5 in refund and replacement schemes yields the lowest cost rates of 33.7159 and 25.8249, respectively. Failure interactions escalate total warranty costs; for instance, in a refund scheme (k = 5), costs with failure interaction reach 31.0169 compared to 28.7603 without. Similar trends apply to replacement schemes. Moreover, a lower warranty cost rate will extend the period, indicating regulation fulfillment due to a closer warranty period to the Lemon period. Sensitivity analysis also underscores the role of higher reliability in reducing warranty costs and complying with Lemon Laws. Finally, maintenance strategies and product reliability are emphasized to fulfill Lemon Laws with minimal costs, i.e., fewer warranty claims.