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I agree with you although I wonder what happens in the case of repeated purchases. Wouldn't the store with lower prices and lower profits on these warranties attract more buyers? Or what if it's Christmas time and I'm buying a gift, I would consider the extended warranty much more rationally.

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I suppose when people comparison-shop they compare on prices, not thinking about extended warranty yet. That part comes later.

You are also neglecting an important factor - someone who is that much into forethought and rational decision-making (such as yourself) so that he is comparing extended warranties before shopping is more likely to buy after-market insurance or better yet skip it altogether because it's pointless.

In fact, I would prefer to shop in stores with more expensive extended warranty because such stores can allow lower margins on the products themselves.

Like the lottery, extended warranties can be thought of as a tax on the mathematically-challenged.

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