IDEAS home Printed from
   My bibliography  Save this article

Network externality and incentive to invest in network security


  • Liao, Chun-Hsiung
  • Chen, Chun-Wei


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.

Suggested Citation

  • Liao, Chun-Hsiung & Chen, Chun-Wei, 2014. "Network externality and incentive to invest in network security," Economic Modelling, Elsevier, vol. 36(C), pages 398-404.
  • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:398-404 DOI: 10.1016/j.econmod.2013.10.006

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Alfredo Garcia & Barry Horowitz, 2007. "The potential for underinvestment in internet security: implications for regulatory policy," Journal of Regulatory Economics, Springer, vol. 31(1), pages 37-55, February.
    2. Tanaka, Hideyuki & Matsuura, Kanta & Sudoh, Osamu, 2005. "Vulnerability and information security investment: An empirical analysis of e-local government in Japan," Journal of Accounting and Public Policy, Elsevier, vol. 24(1), pages 37-59.
    3. Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-249, March-May.
    4. Derrick Huang, C. & Hu, Qing & Behara, Ravi S., 2008. "An economic analysis of the optimal information security investment in the case of a risk-averse firm," International Journal of Production Economics, Elsevier, vol. 114(2), pages 793-804, August.
    5. Jonathan Coppel, 2000. "E-Commerce: Impacts and Policy Challenges," OECD Economics Department Working Papers 252, OECD Publishing.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Aloui, Chokri & Jebsi, Khaïreddine, 2016. "Platform optimal capacity sharing: Willing to pay more does not guarantee a larger capacity share," Economic Modelling, Elsevier, vol. 54(C), pages 276-288.
    2. Yi, Yuyin & Yang, Haishen, 2017. "An evolutionary stable strategy for retailers selling complementary goods subject to indirect network externalities," Economic Modelling, Elsevier, vol. 62(C), pages 184-193.

    More about this item


    Network externality; Online service firm; Network security investment; Self-protect rate; Survival probability;

    JEL classification:

    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:398-404. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.