A strategic analysis of virtual showrooms deployment in online retail platforms

Product experiential attributes are usually hard to communicate via the Internet. With the development of virtual reality technology, online retail platforms may deploy a variety of virtual showrooms to facilitate consumers’ learning of the product. This paper develops a game-theoretic model to investigate the intermediary and third-party seller's strategic interaction in deploying the virtual showrooms. The results indicate that the equilibrium of virtual showrooms deployment is both cost- and product-specific, i.e., the decrease in the development cost may generate a shift of the equilibrium strategy on whether to deploy the virtual showrooms or not; while the product characteristics determine the specific strategy of virtual showrooms deployment, including not deploying the virtual showrooms, or deploying the virtual showrooms at a low/high level. Furthermore, our study identifies opportunities and approaches for the platform to improve the performance of virtual showrooms deployment. We find that, under certain conditions, the incentive misalignment between the intermediary and seller may lead to uncoordinated virtual showrooms deployment. In addition, an alternative pricing mechanism is proposed to coordinate firms’ operations with a “win-win-win” situation for the intermediary, the seller, and the consumers.