The Strategic Interplay Between Return Insurance and Augmented Reality in Live-Streaming Commerce Considering Consumer Search Effort

Product mismatch, arising from consumers’ inability to physically experience products before purchase, is a major cause of returns in e-commerce, eroding e-tailer profits and intensifying consumers’ concerns about returns. To alleviate these concerns, e-tailers have increasingly adopted return insurance (RI), which reduces consumers’ return freight costs. However, RI may encourage consumers to defer product selection from the pre-purchase search stage to the post-purchase evaluation stage, thereby exacerbating mismatch and increasing return rates. As a countermeasure in live-streaming commerce, augmented reality (AR) provides an immersive product experience that can reduce mismatch and returns. This study develops a game-theoretic model to analyze the strategic interplay between an e-tailer’s RI decision and a live streamer’s AR decision while incorporating consumer search effort. The results show that consumer search effort changes the relationship between the two strategies. When search effort is low, RI and AR function as strategic substitutes; when search effort is high, they function as strategic complements. These findings indicate that the value of a return-management strategy depends on consumer behavior and on the presence of the partner’s AR strategy. The study contributes to the literature on interdependent return-management strategies and provides actionable insights for e-commerce practitioners.