Variational approach for a technology acquisition strategy model in context of the Internet of Things

In the era of highly dynamicity and uncertainty, it is of great importance to analyze the strategic decision process for companies’ technology acquisition between internal and external. In particular, the Internet of Things (IoT) has emerged as one of the crucial technologies that contribute to the resiliency and flexibility of companies willing to remain competitive in the markets. Despite the perceived advantages of IoT, it remains unclear what drive companies to adopt IoT in their businesses, due to strategic considerations about technology adoption and strategy selection. In that regard, this paper considers the relative payoffs among technology manufacturers, firms and demand markets, using game theory models and numerical analysis. Precisely by adopting a supply chain network perspective, our game theoretic representation assumes that technology manufacturers produce a technology that sell to firms, which in turn use the acquired technology to produce a commodity that is designed to be sold in the demand markets. Assuming that all the agents seek to maximize their profit functions, whereas the consumers want to satisfy their commodity requirement, in making their consumption decisions, the network structure of the problem is identified, the equilibrium conditions are derived, and the finite-dimensional variational inequality formulation is established. Finally, making use of the variational inequality theory, an existence and uniqueness theorem for the equilibrium distribution is obtained. The findings provide implications for competitive enterprises evaluating whether to adopt a new technology, identifying what conditions lead to win-win outcomes. In particular, firms must carefully consider the transaction costs both with technology manufacturers and demand markets, as key drivers of strategic considerations about the source of innovation. More precisely, when confronted with limited resources and the speed at which technology develop in the market, our findings suggest to companies to pursue a buy strategy, as it allows to gain time and benefit from lower innovation costs with respect to the alternative make strategy.