Strategic aspects of cross-company item-level RFID usage — A game theoretic analysis

Abstract

We propose an economic supply chain model that accounts for typical inefficiencies resulting from low visibility of the flow of consumer goods. Using realistic numerical input values for the model, we illustrate how the profit distribution among manufacturer and retailer changes as item-level RFID is used for different purposes along the consumer goods supply chain. Applying basic Game Theoretic tools, we analyze the incentives of manufacturers and retailers to use item-level RFID cooperatively. Our results suggest that, if RFID helps to prevent typical supply chain inefficiencies such as delivery errors and replenishment inefficiencies, a full and cooperative RFID rollout is the most likely outcome of the "RFID usage game".