In this paper we address the possibility of horizontal foreclosure in markets for complementary services (software …) where the consumption value of durables (hardware) depends on the availability of software. Horizontal foreclosure occurs … when a hardware firm merges with a software firm and the integrated firm ceases to supply compatible software for a rival …

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. …