The Janus Face of AI Adoption and Return Policy for E-Tailers in the Presence of Opportunistic Consumer Behavior

In online retailing, e-tailers increasingly offer flexible return policies to reduce consumer-product valuation mismatches and adopt AI-powered virtual shopping technologies to further alleviate purchase uncertainty. However, both strategies may unintentionally encourage opportunistic consumer behavior, such as temporary product trials and excessive returns. This raises a key operational question: how should an e-tailer jointly consider AI technology adoption and return policy decisions under consumer opportunism? We develop a stylized supply-chain model in which a manufacturer sells through an e-tailer who decides whether to adopt AI virtual shopping and allow product returns. Our analysis reveals three insights. First, even when the share of opportunistic consumers is high, adopting AI technology can improve profits if consumer satisfaction is high and AI effectiveness is moderate, since the genuine-consumer benefit outweighs opportunistic misuse. Second, allowing returns can remain optimal when consumers face high hassle costs: the e-tailer can raise prices to offset opportunistic losses while maintaining consumer utility through the return option. Third, we finally show that AI technology and return policies may harm consumer welfare when AI effectiveness is lower or return hassle is costly. For robustness checking, we extended our model to separately incorporate the implementation costs of AI and the residual value of returns, which validated the stability of our findings.