Friends or Foes? The Effect of IoT Platform Entry Into Smart Device Market Under Quantity Discount Pricing Contract

Abstract

The development of Internet of Things (IoT) technology has promoted the prosperity of the smart device market. Smart devices provide consumers with a higher level of intelligent experience and can collect consumer data through sensors, enabling platforms to obtain additional demand spillover benefits. This has led to the entry of some IoT platforms into the smart device market, directly competing with smart device manufacturers. In this study, we analyze the impact of different market structures in the smart device market on manufacturers' innovation decisions and platform service pricing decisions within a supply chain composed of an IoT platform and a smart device manufacturer. We also examine the impact of platform entry on the quality, prices, and profits of both parties' products. The research indicates that when the smart device market is not fully covered, platforms can promote manufacturer innovation through price discounts and thus obtain higher demand spillover benefits. Furthermore, when the platform enters the market, the quality of both parties' smart devices increases, but the platform's product price is lower than the manufacturer's despite its higher product quality. Finally, we also find that when demand spillover is significant, platform entry is always driven by platform profits, but is not beneficial to manufacturers.