Observable Cyber Risk on Cournot Oligopoly Data Storage Markets

• With the emergence of global digital service providers, concerns about digital oligopolies have increased, with a wide range of potentially harmful effects being discussed. One of these relates to cyber security, where it has been argued that market concentration can increase cyber risk. Such a state of affairs could have dire consequences for insurers and reinsurers, who underwrite cyber risk and are already very concerned about accumulation risk. Against this background, the paper develops some theory about how convex cyber risk affects Cournot oligopoly markets of data storage. It is demonstrated that with constant or increasing marginal production cost, the addition of increasing marginal cyber risk cost decreases the differences between the optimal numbers of records stored by the oligopolists, in effect offsetting the advantage of lower marginal production cost. Furthermore, based on the empirical literature on data breach cost, two possibilities are found: (i) that such cyber risk exhibits decreasing marginal cost in the number of records stored and (ii) the opposite possibility that such cyber risk instead exhibits increasing marginal cost in the number of records stored. The article is concluded with a discussion of the findings and some directions for future research.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

SAMHÄLLSVETENSKAP  -- Annan samhällsvetenskap -- Tvärvetenskapliga studier inom samhällsvetenskap (hsv//swe)

SOCIAL SCIENCES  -- Other Social Sciences -- Social Sciences Interdisciplinary (hsv//eng)

Keyword

Cournot market

oligopoly

market concentration

cyber risk

data breach

digital services

Publication and Content Type

ref (subject category)

art (subject category)