Introducing AR or not? Interplay between online marketplace platform and seller with product returns

Recently, the potential advantages of augmented reality (AR) technology in improving web shopping experience and reducing product returns have attracted widespread attention in the retail industry. However, there are still doubts about whether platform should introduce AR technology, and the interaction mechanism between platform and online sellers is not yet clear, which impedes the application of AR service. In this paper, we develop a game-theoretic model to investigate the interplay between platform AR development and seller AR adoption decisions while considering consumers’ product return behaviour. We show that when the hassle cost of consumers using AR service is moderate, increasing the percentage of return costs shared by consumers and improving the effectiveness of AR technology can motivate platform to develop AR service. Moreover, when the license fees charged by platform for sellers which leasing AR service is either low or medium, online sellers will adopt this technology. Interestingly, although increasing the percentage of return cost shared by consumers lowers the demand, online sellers can attract more consumers to use AR service, and both platform and sellers can benefit from fewer product returns. Finally, we also find that introducing AR technology can achieve a win-win equilibrium situation if the hassle cost is high and the unit return cost is moderate and it also can boost social welfare under certain conditions. Our results provide important managerial insights for practitioners focusing on AR technology applications in the e-commerce industry today when considering product returns.