Internet of Things Network Security Improvement Investment: The Role of Platform and Smart Device Manufacturer

Abstract This study aims to address the network security investment problem in an IoT environment by developing a game-theoretical model. We examine the impact of IoT service level and customer characteristics on the incentives for both the IoT platform and the manufacturer to invest in security, as well as the platform's profitability. Through analytical analysis, we obtain several noteworthy findings. Firstly, we find that a higher IoT platform service level corresponds to a higher security responsibility. As a result, the platform needs to carefully consider the costs and benefits associated with security investment and service provision. Additionally, our research demonstrates that both the platform and the manufacturer's efforts to enhance security do not diminish, even when faced with increasing customer losses due to security breaches. Furthermore, our study reveals the influence of the unit security cost and the size of highly sensitive customers on the security efforts undertaken by both the IoT platform and the smart device manufacturer. These results have important practical implications for firms operating within an IoT-based supply chain. Specifically, our findings can provide valuable decision-making guidance for enterprises seeking digital transformation and making informed choices regarding platform operations.