For Better or For Worse: Impacts of IoT Technology in e‐Commerce Channel

Abstract

Internet of Things (IoT) technology utilizes sensors and other internet‐enabled devices to collect and share data. It is widely regarded as a disruptive technology that brings tremendous opportunities to supply chain members. This study uses a game‐theoretical model to study an e‐commerce setting in which an online platform provides IoT infrastructure and a manufacturer sells its products on the platform. Our work examines the interaction among the manufacturer's IoT investment decision, the platform's choice of pricing models, and the platform's transfer payment strategy. We solve the model analytically and obtain several interesting findings. Our study shows that the manufacturer in a wholesale pricing model is more likely to invest, and invests more, in IoT technology than in an agency one. One surprising finding is that both the manufacturer and the channel performance could be hurt by an increase in IoT technology value in certain situations. Also surprisingly, even having the option of investing in IoT technology by the manufacturer can make both the manufacturer and the channel performance worse off. Therefore, the advancement of IoT technology might not benefit either manufacturers or the whole industry, although e‐commerce platform giants and the news media have been advocating the benefits of IoT technology enthusiastically in recent years. Our results should concern both device manufacturers who contemplate adopting or have adopted IoT technology and policymakers who are interested in overall channel performance.