Security Decisions in a Networked Supply Chain with Integration

Abstract

Communication network provides an important premise for the development of supply chain integration, but also brings more and more severe information security risks. Thus, the information security of each firm depends both on the firm’s own investment, as well as on the strategies of security made by supply chain firms. Using game theory model, this paper discusses the investment on security and sharing of the security information of the supply chain firms. Particularly, we analyze the impact of supply chain’s integration, and inherent vulnerability of network on firms’ security strategies. The results show that if a firm increases the investment on security, the other firm tends to free-riding. In addition, compared with the joint decision-making of firms, they will have less security investment when making decisions separately. Hence, firms should better form an information-sharing alliance to coordinate their security decisions.