E-commerce Client-side System Security: The Government Regulation Issue in Korea

Abstract

As criminal activities that target the client-side system of e-commerce increase, client-side system security becomes an issue of government regulation in Korea. To enhance client-side system security, the Korean government requires e-commerce firms to provide client-side security mechanisms to consumers and to force consumers to install such security programs. In this study, we investigate whether such government policy is desirable. With an analytical model, we show that such policy benefits e-commerce firms. Besides, it is shown that firms have an incentive to invest more for client-side system security mechanisms under such policy. However, the policy is shown to worsen consumer welfare with depriving consumers an option not to deploy inconvenient security mechanisms. Still, such policy is socially desirable under the condition where the security breaches incur relatively high costs to e-commerce firms.