Analysis of financing strategies for digital technology investment under privacy concerns and competition

Digital technology improves consumption experiences and facilitates manufacturers' production of smart products. However, customer privacy concerns and market competition may negatively affect smart product sales and reduce manufacturers' investment in digital technology, particularly for innovation startups with limited funding. This raises an important question about how financing strategies affect a manufacturer's investment in digital technology under privacy concerns and competition. To solve this problem, this paper considers a supply chain in which two manufacturers sell products through a platform, one of which (M1) produces smart products by committing to investing in standard or premium digital technology and adopting platform financing or equity financing to maintain operations, and the other (M2) produces regular products. Intuition may suggest that decreasing product sales prices can stimulate consumption and increase sales. Surprisingly, we find that the sales prices and quantity of smart products decrease simultaneously with an increase in privacy concerns, in sharp contrast to regular products. Additionally, although low privacy concerns can encourage M1 to invest in premium digital technology to attract consumption and adopt equity financing to save investment costs, we find that, interestingly, the manufacturer may invest in standard digital technology through platform financing, particularly when the marginal technology utility is moderate. Finally, we find that for either standard or premium digital technology investments, platform financing can help participants achieve a triple -win result, whereas equity financing cannot. Our research provides insights into the interactions between financing strategies and digital technology investments in the context of customer privacy concerns and market competition.