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DP5269 | Internet Security, Vulnerability Disclosure and Software Provision

Publication Date

23/10/2005

JEL Code(s)

  • L86, O3

Keyword(s)

  • Internet security, Vulnerabilities, Software, network effects

Programme Area(s)

  • Industrial Organization

Network(s)

Abstract

In this paper, we examine how software vulnerabilities affect firms that license software and consumers that purchase software. In particular, we model three decisions of the firm: (i) an upfront investment in the quality of the software to reduce potential vulnerabilities; (ii) a policy decision whether to announce vulnerabilities; and (iii) a price for the software. We also model two decisions of the consumer: (i) whether to purchase the software; and (ii) whether to apply a patch.