RESEARCH ON BENEFITS DISTRIBUTION OF IOT INDUSTRY
CHAIN
YanChun Liang and XiYan Lv
Economics and Management, Beijing Jiaotong University, East Road of Beijing Jiaotong, Beijing, China
Keywords: Internet of things, Industry chain, Intermediate product pricing, Profit-distribution.
Abstract: At present, the development of Internet of things has been regarded as the information industry development
strategy for the next high point in China. Internet of Things will promote the sensor manufacturers,
integrators, operators and other related industries, development with. a huge industry profits. In this paper,
we proposed a clear composition of the industrial chain and established the IOT industry chain structure that
regard the operators as leader. At last, by analyzing the current relationship that supply and demand of
products and services between the parties, Use static game and dynamic game analysis of the interests
distribution of Internet of Things industry chain.
1 INTRODUCTION
Internet of Things through the radio frequency
identification (RFID), infrared sensors, global
positioning systems, laser scanners and other
information sensing equipment, connected objects to
the Internet and exchange information and
communication in order to achieve the object
intelligent identify, locate, track, monitor and
manage a network. U.S. independent market
research firm Forrester predicts that by 2020 the
business of IOT with the existing Internet business
will reach the ratio of 30:1
China's overall scale of
the industry of IOT is expected to more than 1
trillion by 2015, over 5 trillion by 2020.
With the tremendous development of IOT,
Internet of Things be regard as cultivating new
industries. This paper analyzes the industry leader,
have the clear the relationship between the parties in
the industrial chain of IOT. And use intermediate
product pricing model to establish the distribution of
benefits, analysis the distribution of benefits of IOT
industry chain by static game and dynamic game.
2 THE INDUSTRIAL CHAIN OF
IOT
2.1 The Composition of the Industrial
Chain of IOT
The industrial chain means companies take different
functions of value creation, more companies of the
upstream and downstream industries jointly to
provide services to the consumer (product) and
formed the division of labor relations or networks.
Europe, America, Japan and other countries divided
the industrial chain of IOT into Sensors/chip
providers, communication module providers,
telecommu-nication operators, middleware and
application. The telecom operators in China to play
with IOT operators and service Providers. Therefore,
our industrial chain of IOT be composed of the
sensors/chip manufacturers, communication module
providers, Operators and service providers, Software
and application developers, system integrators.
Sensors/chip manufacturers. Currently, low
frequency RFID technology is more mature, lack of
UHF and microwave RFID. Engineering Research
Institute under the sensor (GSII) market survey, 80%
well-known sensor manufacturers have been to enter
the Chinese market.
Communication module provider. At present
communication module providers have the core
Paper, the flames of communications, Huawei,
662
Liang Y. and Lv X..
RESEARCH ON BENEFITS DISTRIBUTION OF IOT INDUSTRY CHAIN.
DOI: 10.5220/0003589906620665
In Proceedings of the 13th International Conference on Enterprise Information Systems (MMLM-2011), pages 662-665
ISBN: 978-989-8425-56-0
Copyright
c
 2011 SCITEPRESS (Science and Technology Publications, Lda.)

Datang, ZTE, ZTT, Huntoon broadcasting, optical
information technology, three-dimensional
communication, etc.
Operators and service providers of IOT are
mainly to provide a unified terminal authentication,
billing and other services, the terminal access
control, terminal management, industry
management, application management, operations
management, platform management, etc.
Software and application developers in the
country has developed a considerable number of
enterprises. As IOT more obvious applications,
industry characteristics, therefore, the current
application software developers are primarily
industry-specific businesses, providing professional
software products and solutions
System integrators are based on customer
demand, will achieve IOT hardware and software
integration to provide a complete solution to
customers of manufacturers. Application of
domestic integration in the IOT have small-scale,
and focus on the industry-based business, but also
the lack of attention of the large multi-industry
company.
2.2 Analysis of Industry Chain of IOT
Every element of Industry Chain of IOT have the
close contact interaction, the main value added by all
the continuous processing of information, such as
collecting, sorting, classification, storage,
transmission, exchange, etc., Provide information
products that the user needs , To achieve the
information Value added, creating more than a
single corporate synergy. From the perspective of
industry chain and the current status of industrial
development of IOT, sensor and equipment
providers and has vast room for development. Three
major Operators in China have the following
advantages:
(1) Wide range of communication networks
Operators have wide coverage, powerful ability
communications network. Control of network,
allowing operators have the right of ownership and
connection from the initial end-user , this theory on
industrial chain Prove that in industry chain, who
owns the end-user, who will occupy the central
position, because only the final the user is the source
of the value chain and the most important anchor
All value of the value chain are only able to
meet the end-user demand, can finally be achieved.
Because operators have a customer resources, other
companies only have to through Operators to
provide services to users. Finally, Operators will
firmly hold the core of the industrial chain.
(2) Financial advantage
The development of Internet of Things must be
supported by financial, the three major Operators in
China after years of communications industry
operations. Accumulated a lot of Funds, with strong
financial advantage.
(3) Large-scale users
Operators have a large user e and nationwide
service channels. Once Internet of Things
developed, these users must be consumers of
Internet of Things. Conducive to the overall
promotion and application of Internet of Things.
(4) Strong data processing capability
With the rapid development of Internet of
Things, data processing capacity will be the
emphasis. Massive data processing capacity will be
restricting the development of Internet of Things.
Analysis all aspects of Internet of Things, the three
Analysis all aspects of Internet of Things, the
three major telecom operators have powerful data
processing capacity, which is not available in the
remaining part
As Internet of Things in the introduction stage,
technology immaturity, customer lack of awareness,
not formed a complete industrial chain. Operators
hold the chain links of the network industry and
application of two important aspects, from the
upstream and downstream operators, co-led the
formation of industry alliances will be key to
promoting industrial development. Operators in a
dominant position on the chain, up to restricting the
upstream equipment suppliers, down through
cooperation to improve control. Through analysis,
the operator of Internet of Things as the core of the
industrial chain model shown in Figure 1.
Figure 1: The model of IOT industrial chain that operator
as the core.
Sensors/chip manufacturers and commu-nications
module providers provide front-end equipment to
IOT led by Operators, constitutes purchase
relationship; systems integrator/software provider
build network platform for IOT.
RESEARCH ON BENEFITS DISTRIBUTION OF IOT INDUSTRY CHAIN
663

3 THE DISTRIBUTION OF
BENEFITS OF IOT INDUSTRY
CHAIN BASED ON GAME
THEORY
Based on the above analysis, the various aspects of
the industry chain of IOT constitutes a supply-
demand relationship. On the basis of this
relationship, establish. The distribution of benefits
product model by Intermediate product pricing and
analysis by static game and dynamic games
3.1 Model
Suppose Sensors/chip manufacturers, Commu-
nication module provider, software provider systems
integrator and Three operator (China Mobile, China
Unicom, China Telecom) have

Figure 2: Supply and demand model of IOT.
Purchase relationship. sensors/chip manu-facturers,
communication module providers, system
integrators and software providers as suppliers,
operators as the demand side.
Assuming price of product that provided by
upstream suppliers is
P
1
, with the quantity of product
Q
1
, Cost :C
1
,
Profit:
）π
11111
(QCQP −=
(1)
The services price that downstream operators
provide to the consumer is P
2

with the volume of
services Q
2,
Cost:C
2
,
Profit:
1122222
QPQCQP −−= ）（π
(2)
The profit of industrial chain of IOT:
(
)
2211222221
QCQC( +−=−=+= ）（（）πππ QPQCQP
(3)
Intermediate and final product relationship have
fixed proportion:
⎩
⎨
⎧
=
=
QQ
aQQ
1
2
(4)
Assumed
1=
α
, Operators of IOT as the
monopolist can determine their own capacity and the
best service to maximize their profits. Assume the
final product market demand curve:
）（QfP
=
(5)
3.2 Static Game
Suppose both suppliers and operators cannot
determine the price of intermediate products, the
upstream sensor and module suppliers, choose yield
maximize self-interest.
if is Marginal cost, assume the output
1
Q
of the sensor supplier Unknown. According to
. Can be drawn from the first-order
conditions for profit maximization:
)(QMCP
11
=
(6)
The operator determined yield based on business
size and type of production can be seen as in
accordance with the demand curve .
Suppose operators as monopolist, According to
. Can be drawn from the first-
order conditions for operators, profit maximization:
)()(QQ
21
QMCQffP −
′
+
=
）（
(7)
Equations (6) and (7) obtained maximize the yield
m
Q
, Satisfy the following equation:
mm 1 2
Q Q () () ()0
mm m
ffQMCQMCQ
′
+
−− =（）
(8)
Substituting
m
Q
to (3-8), obtained Price
m
P
of
intermediate products
1
mmm 2
()
Q Q () ()
mm
mm
PMCQ
P
ffQMCQ
=
⎧
⎨
′
=+ −
⎩
（）
(9)
The two corporate profits
1
π ,
2
π :
11
221
()
()
mm m
mm m m
PQ C Q
PQ C Q PQ
π
π
=−
⎧
⎨
=− −
⎩
(10)
If the suppliers and operators have no price
decision, the parties select the production (operator
select the demand) to maximize their own profits, all
of the game equilibrium can be achieved to
maximize the overall profit, in order to achieve their
own and overall profit Consistent.
3.3 Dynamic Game
Operators of IOT have the right to determine the
price of intermediate products, operators act first to
select the price. Upstream equipment suppliers based
on prices of intermediate products, the cost to select
intermediate products that can maximize suppliers
,

Supplier 1
Supplier 2
...
Operators and service
providers
Customers
1
P
1
Q
2
P
2
Q
1
C
)(QMC
1
）π
11111
(QCQP
−
=

）（
22
QfP =
1122222
QPQCQP
−
−
=
）（π
ICEIS 2011 - 13th International Conference on Enterprise Information Systems
664

profits. By the dynamic game of backward
induction, the upstream equipment suppliers to make
their maximum profit, in line with network
operator's pricing of intermediate products
1
P
to
decide yield,
The first order conditions:
）ψ（）（ QQMCP
11
=
=
(11)
Assumed to be monotonic functions:
）（
1
1
PQ
−
= ϕ
(12)
Operators know the upstream equipment vendors
based on intermediate products
,
price to determine
the amount of service, so the price of intermediate
goods to be considered to achive operators
,
profit-
maximizing
）（））（（）（））（
）（）（
1
1
11
1
21
1
1
1
0P
122
0P
112222
0P
PPPCPP(max
QPQCQPmaxQPQCQPmax
1
11
−−−−
≥
≥≥
×−−×=
−
−
=−−
ϕϕϕϕ f
(13)
First-order conditions:
0)(
P
)(
P
)(
)(
P
)(
))(()(
P
)(
))((
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
=−−−
+
−
−−
−
−
−−
−
−
P
d
Pd
P
d
Pd
PMC
d
Pd
PfP
d
Pd
Pf
ϕ
ϕϕ
ϕ
ϕ
ϕϕ
ϕ
ϕ
，
(14)
Comparison the distribution of profits of Static
game and dynamic game, Equation(12)and (7)
obtained static equilibrium solution with
P1*,
Assumed to (14) get Equilibrium P
2
* by dynamic
game. Shows that P
1
* ≠ P
2
*. Learned from the
above formula, IOT operator get more profits from
the dynamic game more than static game, the overall
profit from dynamic game is more than static game,
suppliers gain the profits from dynamic game less
than static.
When the downstream business can determine
the price of Intermediate products. The first gamer
player in the dynamic game earned more profit than
the static game.
Therefore, the industrial chain of
IOT on the basis cooperation, the parties will take
dynamic game, the first game will be a larger profit
side.
4 CONCLUSIONS
With the development of IOT industry, operators, as
the leader of IOT industry's position will become
increasingly clear that the operator determine the
price of intermediate goods, with the price of
making the "first-mover advantage" in the interests
of the industry chain distribution process gain
advantage. However, to promote the development of
the industrial chain of IOT, we must take into
account the profitability of other sectors. Operators
determine the intermediate goods prices, taking into
account its own interests should proceed to
maximize the overall development of intermediate
goods prices. In this way, IOT that can ensure the
profitability of all sectors of the industry chain and
will help the industry grow and develop.
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