A new game of information sharing and security investment between two allied firms

In consideration of business information sharing, this paper investigates a new game of information sharing and security investment between two allied firms. Firms' strategies in three decision models (Nash Equilibrium decision, partially centralised decision and totally centralised decision) are analysed. We provide some quantitative analyses on how some parameters affect firms' decisions in the three decision models. Our Nash Equilibrium analysis shows that when firms make decisions individually, they will share no information with each other. When information sharing is determined by a social planner, firms will share some information with each other, which increases the risk of information leakage. Thus, firms should increase their security investments to mitigate the higher information leakage risk. However, our analysis shows that instead of investing more in information security, firms will reduce their security investment, which will further aggravate the risk. Hence, a social planner is required to designate the security investments and information sharing levels for both firms. Our theoretical analysis shows that firms' strategies can achieve global optimality in the totally centralised decision model. Furthermore, a numerical experiment is conducted and the result demonstrates that totally centralised decision model is more efficient than the other two decision models. At last, we propose two compensation mechanisms to help firms coordinate their strategies when making decisions individually.