Strategic analysis of RFID adoption sequences in a supply chain with Cournot competition: effects of ordering-timing strategies

Abstract

We investigate the effects of ordering-timing strategies on radio-frequency identification (RFID) adoption sequences and firms’ profitability in a supply chain with a manufacturer and two retailers, both of whom suffer from misplaced inventory problems. The manufacturer is the Stackelberg leader, the two retailers engage in a quantity competition and simultaneously/sequentially make decisions on RFID adoption under two ordering-timing strategies. We derive the equilibrium strategies for RFID adoption and characterize each partner’s optimal order quantity and profit. We show that the equilibrium strategies for RFID adoption are identical regardless of the two competing retailers’ RFID adoption sequences. The retailer with a smaller misplacement rate will never adopt RFID alone. However, for the retailer with a higher misplacement rate: the more intense the competition is, the more likely he is to adopt RFID; ordering later always promotes him to adopt RFID; ordering earlier is more attractive than adopting RFID when the tagging cost is intermediate. Furthermore, as long as one or both retailers adopt RFID, ordering simultaneously can achieve Pareto improvement for both retailers. When neither retailer adopts RFID, the optimal ordering strategies depend on the misplacement rates and competition intensity.