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.