Online retailers’ platform-based Worry-Free-Shopping: Retailing strategy considering consumer valuation bias

Platform-based Worry-Free Shopping (WFS) is an emerging retail service system developed by online platforms. Online retailers on such platforms can actively decide whether to provide WFS services for consumers. If WFS service is offered, a WFS logo will be displayed on the product information page by the platform. Although WFS can enhance consumers’ willingness to pay, it incurs cost for online retailers and may cause more product returns due to valuation bias. This paper investigates when an online retailer on a platform should offer customers WFS, and it explores the detailed effects of WFS on the retailer, platform, customers, and society. We find that both the retailer and platform do not necessarily benefit from WFS. Although the platform can take a “hands-off” attitude towards the retailer in most cases, they may have conflicting interests while providing WFS, so we have developed a mechanism to coordinate their benefits. Our results explain why the platform develops such a WFS service system, and when it should incentivize the online retailer to offer WFS to customers. Furthermore, WFS always hurts customers when the valuation bias is small, while it may favor the society when the WFS cost is low. In extensions, we verify the robustness of our results and also get new insights. First, a small product salvage value motivates the platform to encourage the retailer to offer WFS. Second, though a larger proportion of overestimating customers always benefits the platform, it may hurt the retailer when it is less than a threshold. Finally, a larger heterogeneity in valuation increment allows the retailer to charge higher price and benefits the platform.