Optimal Pricing Design for Coordinated and Uncoordinated IoT Networks

An Internet of Things (IoT) system can include several different types of service providers, who sell IoT service, network service, and computation service to customers, either jointly or separately. A deep understanding of complicated coupling among these providers in terms of pricing and service decisions is critical to the success of IoT networks. This paper studies the impact of the provider interaction structures on the overall IoT system with heterogeneous customers. Specifically, we first study a generic IoT scenario with three interaction structures: coordinated, vertically-uncoordinated, and horizontally-uncoordinated structures. Despite the challenging non-convex optimization problems involved in modeling and analyzing these structures, we successfully obtain the closed-form optimal pricing strategies of providers in each interaction structure. We further extend the analysis to a specific IoT scenario with local computation capability (e.g., Internet of Vehicles (IoV)). We prove that the coordinated structure is better than two uncoordinated structures for both providers and customers, as it avoids selfish price markup behaviors in uncoordinated structures. Between the two uncoordinated structures, when customers' demand variance is large and utility-cost ratio is medium, vertically-uncoordinated structure is better than horizontal one for both providers and customers, due to the complementary providers' competition in horizontally-uncoordinated structure. Counter-intuitively, we identify that providers' optimal prices do not change with their costs at the critical point of customers' full participation in the vertically-uncoordinated structure.

Automated summary

This paper investigates the impact of provider interaction structures on the overall IoT system. By studying three different structures, the optimal pricing strategies of providers in each structure are obtained. The results show that the coordinated structure is the best choice for providers and customers, and the vertically-uncoordinated structure is preferred when customers have high demand variance and medium utility-cost ratio.