Pricing for Profit in Internet of Things

Abstract

The economic model of the Internet of Things (IoT) consists of end users, advertisers and three different kinds of providers–IoT service provider (IoTSP), Wireless service provider (WSP) and cloud service provider (CSP). We investigate three different kinds of interactions among the providers. First, we consider that the IoTSP prices a bundled service to the end-users, and the WSP and CSP pay the IoTSP (push model). Next, we consider the model where the end-users independently pay each provider (pull model). Finally, we consider a hybrid model of the above two where the IoTSP and WSP quote their prices to the end-users, but the CSP quotes its price to the IoTSP. We model different kinds of interaction among the providers as a combination of sequential and parallel non-cooperative games. We characterize and quantify the impact of the advertisement revenue on the equilibrium pricing strategy and payoff of providers, and corresponding demands of end users in each of the above interaction models. Our analysis reveals that the demand of end-users, and the payoffs of the providers are non decreasing functions of the advertisement revenue. For sufficiently high advertisement revenue, the IoTSP will offer its service free of cost in each interaction model. However, the payoffs of the providers, and the demand of end-users vary across different interaction models. Our analysis shows that the demand of end-users, and the payoff of the WSP are the highest in the pull (push, resp.) model in the low (high, resp.) advertisement revenue regime. The payoff of the IoTSP is always higher in the pull model irrespective of the advertisement revenue. The payoff of the CSP is the highest in the hybrid model in the low advertisement revenue regime. However, in the high advertisement revenue regime the payoff of the CSP in the hybrid model or in the push model can be higher depending on the equilibrium chosen in the push model.