Good Will Adjustment Games: An Economic and Legal Analysis of Secret Warranty Regulation

Secret warranty programs, which have existed for at least twenty years, are enormous in scope: nearly every car on the road is said to be subject to one of the more than 500 secret warranties supposedly operating at any given time,! while one expert estimates that the ten largest known secret warranty programs have covered 30 million automobiles and $3 billion in repairs. The purpose of this Article is to discuss whether secret warranties should be regulated, and if so, how. Part II of the Article reviews what is known about the working of secret warranty programs. Part III discusses the economics of secret warranties, consumer psychology, and the policies which militate in favor of and against regulation of secret warranties.

Part IV explores the laws applicable to secret warranties. Finally, part V attempts to determine what type of regulation might be most effective.