Cyber(in)security and Interoperability in Digital Services

Stefano Comino (), Alessandro Fedele () and Fabio Manenti ()
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Stefano Comino: University of Udine, Italy
Alessandro Fedele: Free University of Bozen-Bolzano, Italy
Fabio Manenti: University of Padova, Italy

No BEMPS116, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: This paper investigates the interplay between interoperability and the incentives to invest in cybersecurity in digital markets. We develop a two-sided symmetric duopoly model in which cyberattacks create a congestion-like externality, and interoperability amplifies hackers’ incentives to target connected platforms. We show that interoperability affects cybersecurity investment through multiple channels, potentially producing a non-linear relationship: low interoperability promotes risk-mitigation efforts, whereas high interoperability may discourage investment due to a public good effect. We then compare private and social incentives for interoperability, identifying potential sources of misalignment. Finally, we extend the baseline model to account for additional factors shaping the desirability of interoperability, including platforms’ business models, users’ awareness of cyber risk, market expansion effects, and asymmetries in user bases.

Keywords: Cybersecurity; Interoperability; Congestion; Hackers; Two-sided Platforms; Investment. (search for similar items in EconPapers)
JEL-codes: L13 L15 L51 L86 (search for similar items in EconPapers)
Pages: [29 pages]
Date: 2025-10
New Economics Papers: this item is included in nep-ind, nep-mac and nep-pay
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