benefits arise from hardware/software systems, adoption externalities will occur when there are (i) increasing returns to scale … in the production of software, (ii) free entry in software, and (iii) consumers have a preference for software variety … purchaser does not internalize the welfare improving response of the software industry, particularly the increase in software …

In this paper, we examine how software vulnerabilities affect firms that license software and consumers that purchase … software. In particular, we model three decisions of the firm: (i) an upfront investment in the quality of the software to … software. We also model two decisions of the consumer: (i) whether to purchase the software; and (ii) whether to apply a patch. …