Online Shopping and Platform Design with Ex Ante Registration Requirements

Abstract

We study platform design in online markets in which buying involves a (non-monetary) cost for consumers caused by privacy and security concerns. Firms decide whether to require registration at their website before consumers learn the price and all relevant product information. We show that a monopoly seller requires ex ante registration in equilibrium if and only if the consumer's ’registration cost is sufficiently low. The result is reinforced when incorporating future purchases or an informational value of consumer registration to the fi rm, and it is robust to introducing price competition. We also show that discounts (store credit) can increase the share of consumers who register and hence a fi rm'’s profi t even though discounts distort the equilibrium price.