Exploring Security Service on Information Product's Pricing Decisions

In the information industry, original firms often improve their product and enhance the security service to deal with the negative network effects and compete with new entrants. In the face of competition, the original firm does not respond to a rival's strategic move, allowing old users to switch to the competitor's product in the second stage, i.e., referred to as Scenario . We investigate equilibrium characteristics, specifically the role of security service under the influence of the negative network effects caused by the system's load. This study shows that under the original firm's "no respond"behavior, the security service of the original firm grows because of its improvement level but decreases when the construction level of new entrant information products increases. These findings indicate that the original firm's security service can stimulate the profit rise resulting from a growing product advantage; hence, the original firm has a greater incentive to reduce negative network effects. When a competitor's product is more competitive, the original firm is less encouraged to invest in the security service.