Fabrizi, S., Lippert, S., Rodrigues-Neto, J.A., 2026. Attack, defense and the market for protection. Journal of Economic Theory, conditionally accepted.
We study the market for the provision of protection. Its demand side arises from an interaction between heterogeneous populations of attackers and potentially connected defenders. Attackers decide whether to perpetrate untargeted attacks. Defenders decide whether to buy protection at a market price. If interconnected, unprotected defenders are also exposed to secondary attacks spreading through their network. With varying modes of attack, active attackers affect the cost of providing protection thereby inducing possible economies of use. After providing sufficient conditions for the existence and uniqueness of a Nash equilibrium in the interaction between attackers and defenders, we analyze pricing incentives and protection coverage under alternative market structures. We discuss efficiency issues in the market for protection. Market concentration may be socially beneficial due to the internalization of economies of use. Higher connectedness may be socially beneficial due to increased incentives to buy protection.