On Cyber Warranties

Interesting article discussing cyber-warranties, and whether they are an effective way to transfer risk (as envisioned by Akerlof's "market for lemons") or a marketing trick.

The conclusion:

Warranties must transfer non-negligible amounts of liability to vendors in order to meaningfully overcome the market for lemons. Our preliminary analysis suggests the majority of cyber warranties cover the cost of repairing the device alone. Only cyber-incident warranties cover first-party costs from cyber-attacks -- why all such warranties were offered by firms selling intangible products is an open question. Consumers should question whether warranties can function as a costly signal when narrow coverage means vendors accept little risk.

Worse still, buyers cannot compare across cyber-incident warranty contracts due to the diversity of obligations and exclusions. Ambiguous definitions of the buyer's obligations and excluded events create uncertainty over what is covered. Moving toward standardized terms and conditions may help consumers, as has been pursued in cyber insurance, but this is in tension with innovation and product diversity.

[..]

Theoretical work suggests both the breadth of the warranty and the price of a product determine whether the warranty functions as a quality signal. Our analysis has not touched upon the price of these products. It could be that firms with ineffective products pass the cost of the warranty on to buyers via higher prices. Future studies could analyze warranties and price together to probe this issue.

In conclusion, cyber warranties -- particularly cyber-product warranties -- do not transfer enough risk to be a market fix as imagined in Woods. But this does not mean they are pure marketing tricks either. The most valuable feature of warranties is in preventing vendors from exaggerating what their products can do. Consumers who read the fine print can place greater trust in marketing claims so long as the functionality is covered by a cyber-incident warranty.


Posted on March 26, 2020 at 6:27 AM • 1 Comments

Comments

Clive RobinsonMarch 26, 2020 11:00 AM

@ ALL,

The first problem to sort out is,

    Consumers who read the fine print can place greater trust in marketing claims...

Any one remember where the EULA's used to be?

That's right in the shrink wrapped box that ment you had to purchase the product and importantly "open the package" before you could read it.

Where upon the first condition would be effectively,

    By opening this package you enter into a binding agreament between you and XXX Co that the following terms apply without exception...

Or something similar...

It's the old fairy tail "three drops of blood" before "you try on the ring" scam.

If the last thirty years are anything to go by, then technology companies will pay lots of money to lawyers to avoid or invalidate any warranty claims any which way they can...

Even if the legislators could find ways to stop them, the lobyists will delay or emasculate the legislation as best they can. Having already worked out a scam to get around the legislation before it's inked.

This started because politicians refused to get to grips with "US Success story" companies. As a result ehat should never have been aloud like the DMCA is now being used to avoid warranties on physical objects that had formerly been constrained by legislation. Not least of which is vehicles with the likes of John Deere tractor manufacturers,

https://www.wired.com/2015/04/dmca-ownership-john-deere/

We pay money often lots of money but we end up owning nothing unless it's increased debt by lockin etc. For instance PC's atleast you can just about do things with them, but tablets, smart devices and smart phones, you have to go through some rent seekers "walled garden".

Waranties are not going to solve these issues, the only thing that will is a lobby proof legislature, and as long as money is in the game influance will always buy what it wants...

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