Quality Competition in the Security Software Market

Recent years have witnessed an unprecedented growth in the security software market. This market is fiercely competitive with about seven dozen vendors, yet, the price is high and coverage low. Although current research has examined these idiosyncrasies and has found the existence of a negative network effect as a possible explanation, an important question still remains: what possibly discourages product differentiation in this competitive market? We develop a comprehensive quantitative model to answer this question. Our analyses reveal that the negative network effect makes quality differentiation less likely, as well. Hence, our contributions are two-fold: (i) we explain why quality differentiation is often suboptimal for vendors in this market, and (ii) we generalize prior work to include asymmetric equilibriums and find that the presence of the negative network effect still provides insights into the unique structure of this market, with important strategic implications for vendors.