Internet of things (IoT) platform competition: Consumer switching versus provider multihoming

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1 Citation (Scopus)

Abstract

Internet of things (IoT) brings new opportunities and represents a new source of welfare and efficiency. However, the emerging consumer IoT platform competition creates the risk of monopoly power due to network effects. Overall, it is likely that both competition (incentivized through lowering consumer switching costs) and cooperation (achieved through interoperability, which enables data portability and service provider multihoming) are needed to maximize social welfare. This article aims to address how consumer switching costs and provider multihoming affect competition of emerging consumer IoT data platforms under different market conditions and regulatory schemes. It utilizes agent-based modelling that is especially suitable when decision making is distributed at a micro level while some rules are applied in a centralized fashion. The obtained findings emphasize the role of the regulator in guiding the market. It seems that when switching costs diminish at all sides of the platforms, consumers and service providers will favour the platform with a higher number of users. Further, service provider multihoming mitigates market concentration on both sides of a platform when switching costs are low. Thus, there seems to be a minimum level of interoperability needed to promote market competition. Further, although data portability gives more freedom to consumers in choosing a platform provider, it may result in a winner-takes-all situation due to strong indirect network effects.
Original languageEnglish
Article number102101
JournalTechnovation
Volume90-91
Early online date10 Dec 2019
DOIs
Publication statusPublished - 2020
MoE publication typeA1 Journal article-refereed

Keywords

  • IoT
  • Interoperability
  • Network effect
  • Data portability
  • Consumer switching
  • Service provider multihoming
  • Coopetition
  • Regulation

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  • Projects

    Digital Disruption of Industry

    Kilkki, M., Vesselkov, A. & Hämmäinen, H.

    01/01/201830/04/2021

    Project: Academy of Finland: Strategic research funding

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