Network externality and incentive to invest in network security

Chun-Hsiung Liao and Chun-Wei Chen

Economic Modelling, 2014, vol. 36, issue C, 398-404

Abstract: Breaches of network security can result in substantial losses for businesses. A game theory-based model is developed to investigate in the short run how network externality influences the optimal strategy of competing online firms producing homogenous services to invest in NS. A firm's self-protect rate and survival probability against NS security incidents differ depending on its related investment decisions. The incentive of a firm to invest in NS is derived, and the impact of the survival probability and the effect of the number of firms investing in NS on a firm's incentive to invest in NS are also analyzed. Policy implications drawn from the study are provided at the end the work.

Keywords: Network externality; Online service firm; Network security investment; Self-protect rate; Survival probability (search for similar items in EconPapers)
JEL-codes: O25 O32 P51 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:36:y:2014:i:c:p:398-404

DOI: 10.1016/j.econmod.2013.10.006

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