Virtual Reality, Real Profits: How VR Reshapes Price, Bidding Competition, and Strategic Reactions in Online House Auctions

Abstract

Virtual reality (VR) is transforming online product presentation with its 3D and interactive capabilities. While VR's effects are studied for selling low-value, standardized goods by posted prices (such as books and clothing), its role in high-stakes and complex contexts like online house auctions-characterized by diverse product attributes and intricate auction dynamics-remains unclear. First, houses are of great value, rich in spatial details, and have variant attributes, which drastically boost consumers' difficulty of product evaluation and stakes of purchases, often leading to low market efficiency and liquidity. Second, the market outcomes in online auctions are largely determined by the competitive and strategic bidding process instead of independent decision-making as in traditional posted prices. Given the unique context, we conduct empirical analyses to explore how VR affects the market outcome in online house auctions and reveal the underlying mechanism from the viewpoint of potential buyers' bidding competition and strategic reactions. Estimation results show that VR could improve the final auction price by 5.2% (or $16,306 USD equivalent). This positive effect is partially mediated by increased bidding competition, specifically enhancing both competition breadth (more bidders' participation) and depth (more bids per bidder). Besides, we find that buyers are prone to adopting jump bidding and late bidding as strategic reactions to VR-induced bidding competition. However, jump bidding is not an effective tactic like late bidding, as it does not reduce but increases the final price, making the winner pay more to obtain the auctioned item. Our findings highlight VR's substantial value in complex online house auctions, driven by its impact on information structure, bidder competition, and strategic interactions. These results provide theoretical insights into the role of VR in auction markets of high-value and unstandardized products and offer practical implications for platforms, sellers, and buyers.

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