Abstract In this paper, a competitive software market that includes horizontal and quality differentiation, as well as a negative network effect driven by the presence of malicious agents, is modeled. Software products with larger installed bases, and therefore more potential computers to attack, present more appealing targets for malicious agents. One finding is that software firms may profit from increased malicious activity. Software products in a more competitive market are less 1 Peter Gutmann was the accepting senior editor for this paper. Lech Janczewski served as the associate editor. The appendix for this paper is located in the "Online Supplements" section of the MIS Quarterly's website (http://www.misq.org). likely to invest in security, while monopolistic or niche products are likely to be more secure from malicious attack. The results provide insights for IS managers considering enterprise software adoption
