<p>The growing consumer focus on information security has shifted firm competition from price alone to a dual focus on price and security. A firm’s security efforts indirectly affect competitor demand through two opposing channels: a negative competitive effect and a positive cross effect. The cross effect arises when the firm’s efforts enhance overall industry security and is modulated by their investment overlap. However, the interplay of these effects remains underexplored in existing literature. This paper examines the strategic interaction on both product price and security efforts between two competitive firms when these effects are taken into account. We find that, faced with the competitor’s increased efforts, firms could charge a higher price when the overlap degree is under a threshold and vice versa. Moreover, the effects of cross and overlap are opposite on firms’ decisions and expected payoffs. If a firm fails to recognize the impact of the cross and overlap effect explicitly, it may underinvest or overinvest in security efforts, leading to a loss in its payoff. To address the distortion decision problem, we propose a cooperation mechanism, which rewards or refunds the firm from its competitor based on the security efforts it exerts. We find that firms will achieve the social security efforts under the mechanism when setting the reward rate appropriately, and especially, the reward rate is positive (negative) when the overlap degree is relatively low (high). Last, we extend the model to an asymmetric case to make our model more general.</p>