Pricing Strategies in Cybersecurity Markets with Network Effects

The cybersecurity market is rapidly growing in the face of ubiquitous vulnerabilities, with vendors delivering solutions ranging from basic software-based approaches to high-end services for diverse business needs. The sustainability of a cybersecurity business relies on its ability to update its solutions to address ever-changing cyber threats continuously. It requires a substantial customer base for data collection and service enhancement, which, in turn, can attract more customers. Therefore, a novel business model that acknowledges this positive network effect and provides incentives for potential customers is crucial to ensure the success of the cybersecurity business. In this paper, we develop an analytical framework with optimization and a Stackelberg game approach to model the cybersecurity market scenario for a cybersecurity vendor offering both a basic software-based service and a premium service. We delve into the market evolution and characterize the conditions under which the dynamic market converges to a unique equilibrium. The optimal pricing strategy for the vendor is analyzed to leverage the network effects for profit maximization.