Pricing Models for the Internet of Things (IoT): Game Perspectives

Abstract

While large IT companies develop full-stack IoT services with their computing resources, there are many small/medium-sized IoT application/device developers who rely on multiple other service providers for various IoT infrastructure services such as data storage, wireless sensor networks, data analytics, and IoT platforms. While pricing decisions of these IoT services are critical to the sustainable growth of the customer base, there is a paucity of studies on the pricing of a set of services involving multiple service providers. Hence, it is challenging for IoT providers to make informed decisions in regards to the pricing of their IoT devices and services. This paper develops pricing game models involving multiple IoT providers and analyzes both a non-cooperative game and a cooperative game. Nash equilibrium prices for three IoT providers in a non-cooperative game and a cooperative game are derived. The non-cooperative Nash equilibrium price of each provider shows that the Nash equilibrium price consists of the average reservation price of the customers and the provider's cost. While the sum of the providers’ prices affects the IoT customers’ demand, the model shows that in pricing, each provider does not take the other providers’ pricing decisions into account. This paper examines how the cooperative game may generate more profits than the non-cooperative game and applies Shapley solutions for fair and efficient allocation of the payoff of the cooperative game. Contrary to conventional wisdom, consumer welfare and the IoT providers’ profit is not a zero-sum game. The three-provider pricing game model is generalized for any finite number of providers.