Channel Encroachment and Supply Chain Performance: The Effects of Internet of Things Data Sharing

The advancement of Internet of Things (IoT) technology has enabled IoT device manufacturers to collect consumer usage data (IoT data) whenever their devices are in use. Our paper examines the following setting: A manufacturer collects IoT data and decides whether to share it with a retailer, while consumers remain concerned about their privacy; the retailer, in turn, can leverage the shared data for cross-selling by investing in data-mining efforts that transform raw data into actionable insights. This aspect of data mining differentiates our study from traditional research on information sharing. Beyond selling through the existing retail channel, the manufacturer also has the option to establish a direct channel, thereby encroaching on the retailer’s market. Our analysis reveals several key insights. First, when the manufacturer both encroaches and shares IoT data, we observe a counterintuitive positive effect of the channel substitution rate: As the substitution rate increases, both the manufacturer and the retailer may see higher profits. Second, while the manufacturer always chooses to encroach when data sharing is absent, its motivation to do so weakens when it shares IoT data. Finally, we find that an increase in the value of IoT data can unexpectedly lead to a decline in the retailer’s profit.