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Hacking is becoming more common and dangerous. The challenge of dealing with hacking often comes from the fact that much of our wisdom about conventional crime cannot be directly applied to understand hacking behavior. Against this backdrop, hacking studies are reviewed in view of the new features of cybercrime and how these features affect the application of the classical economic theory of crime in the cyberspace. Most findings of hacking studies can be interpreted with a parsimonious demand-and-supply framework. Hackers decide whether and how much to “supply” hacking by calculating the return on hacking over other opportunities. Defenders optimally tolerate some level of hacking risks because defense is costly. This tolerance can be interpreted as an indirect “demand” for hacking. Variations in law enforcement, hacking benefits, hacking costs, legal alternatives, private defense, and the dual-use problem can variously affect the supply or demand for hacking, and in turn the equilibrium amount of hacking in the market. Overall, it is suggested that the classical economic theory of crime remains a powerful framework to explain hacking behaviors. However, the application of this theory calls for considerations of different assumptions and driving forces, such as psychological motives and economies of scale in offenses, that are often less prevalent in conventional (offline) criminal behaviors but that tend to underscore hacking in the cyberspace.

We investigate whether the discounts offered by online daily deals help attract consumer purchases. By tracking the sales of 19,978 deals on Groupon.com and conducting a battery of identification and falsification tests, we find that deep discounts reduce sales. A 1% increase in a deal’s discount decreases sales by 0.035%–0.256%. If a merchant offers an additional 10% discount from the sample mean of 55.6%, sales could decrease by 0.63%–4.60%, or 0.80–5.24 units and $42–$275 in revenue. This negative effect of discount is more prominent among credence goods and deals with low sales, and when the deals are offered in cities with higher income and better education. Our findings suggest that consumers are concerned about product quality, and excessive discounts may reduce sales immediately. A follow-up lab experiment provides further support to this quality-concern explanation. Furthermore, it suggests the existence of a “threshold” effect: the negative effect on sales is present only when the discount is sufficiently high. Additional empirical analysis shows that deals displaying favorable third-party support, such as Facebook fans and online reviews, are more susceptible to this adverse discount effect. We draw related managerial implications. The online appendix is available at https://doi.org/10.1287/isre.2017.0772 .