Networks, Hackers, and Nonprotected Consumers

Universität der Bundeswehr München/Bundeswehr University Munich Working Paper No. 3

24 Pages Posted: 19 Jul 2013

See all articles by Florian W. Bartholomae

Florian W. Bartholomae

Munich Business School; University of the German Federal Armed Forces - Universität der Bundeswehr München

Date Written: July 1, 2013

Abstract

In this paper a network model is developed in which three players sequentially choose their strategies. In the first stage, a profit-maximizing network firm chooses the price and thus the size of the network. In the second stage the consumers decide whether to join in the network or not. In the last stage a hacker has the opportunity to hack the network and cause damage to the consumer. The success of hacking is based on the protection of the customers. Whereas in the first part of the paper this is given exogenously it is endogenized later on. In an extension, the utility of the hacker as well as the consumers includes psychological costs, thus allowing some further insights. Finally, policy implications are given implying better international cooperation of the law enforcement authorities.

Keywords: hacking, network size, cloud computing, nonprotected consumers

JEL Classification: D03, L1, L86, K4

Suggested Citation

Bartholomae, Florian W., Networks, Hackers, and Nonprotected Consumers (July 1, 2013). Universität der Bundeswehr München/Bundeswehr University Munich Working Paper No. 3, Available at SSRN: https://ssrn.com/abstract=2295393 or http://dx.doi.org/10.2139/ssrn.2295393

Florian W. Bartholomae (Contact Author)

Munich Business School ( email )

Elsenheimerstraße 61
Munich, Bavaria 80687
Germany

University of the German Federal Armed Forces - Universität der Bundeswehr München ( email )

Werner-Heisenberg-Weg 39
Neubiberg
Munich, 85579
Germany

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