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Economic incentives in security information sharing: the effects of market structures

Author

Listed:
  • Xing Gao

    (Southeast University)

  • Weijun Zhong

    (Southeast University)

Abstract

The past few years have witnessed numerous information security incidents throughout the world, which unfortunately become increasingly tough to be completely addressed just by technology solutions such as advanced firewalls and intrusion detection systems. In addition to technology components, Internet environment can be viewed as a complex economic system consisting of firms, hackers, government sectors and other participants, whose economic incentives should be taken into account carefully when security solutions are formulated. In order to better protect information assets, information security economics as an emerging and thriving research branch emerges aiming at attempting to solve the problems of distorted incentives of such stakeholders by means of economic approaches. However, how these participants’ economic incentives for information security improvement change when they evolve between different market structures has remained unknown yet. Using game theory, we develop an analytical framework to investigate the effects of market structures on security investments, information sharing, attack investments, expected profits, expected consumer surplus and expected social welfare. We demonstrate that the levels of security investments, information sharing, attack investments, and expected profits are higher while expected consumer surplus and expected social welfare are lower under Cournot competition than under Bertrand competition. In particular, we surprisingly find that under either type of competition, the demand switch ratio caused by security breaches may benefit firms, consumers, government sectors and harm hackers. Our results provide some relevant managerial insights into formulating the strategies of security investments and information sharing for the firms transforming from one type of competition to the other.

Suggested Citation

  • Xing Gao & Weijun Zhong, 2016. "Economic incentives in security information sharing: the effects of market structures," Information Technology and Management, Springer, vol. 17(4), pages 361-377, December.
  • Handle: RePEc:spr:infotm:v:17:y:2016:i:4:d:10.1007_s10799-015-0253-1
    DOI: 10.1007/s10799-015-0253-1
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    References listed on IDEAS

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    Cited by:

    1. Xiaofei Qian & Jun Pei & Xinbao Liu & Mi Zhou & Panos M. Pardalos, 2019. "Information security decisions for two firms in a market with different types of customers," Journal of Combinatorial Optimization, Springer, vol. 38(4), pages 1263-1285, November.
    2. Alessandro Fedele & Cristian Roner, 2020. "Dangerous Games: A Literature Review on Cybersecurity Investments," BEMPS - Bozen Economics & Management Paper Series BEMPS75, Faculty of Economics and Management at the Free University of Bozen.
    3. Xinbao Liu & Xiaofei Qian & Jun Pei & Panos M. Pardalos, 2018. "Security investment and information sharing in the market of complementary firms: impact of complementarity degree and industry size," Journal of Global Optimization, Springer, vol. 70(2), pages 413-436, February.

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    More about this item

    Keywords

    Bertrand competition; Cournot competition; Security investment; Information sharing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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