Analytical model of adoption of item level RFID in a two‐echelon supply chain with shelf‐space and price‐dependent demand

We investigate whether it is possible for the manufacturer as well as the retailer to derive economic benefits from item‐level RFID. We consider two supply chain contracts. In the first instance the manufacturer sets the wholesale price for his product and in response the retailer sets the retail price and allocates the shelf‐space. We find that in this setting item‐level RFID is adopted in a decentralized supply chain at the same levels of RFID costs as in an integrated supply chain with a single decision maker. The second case that we consider involves a powerful retailer setting product shelf‐space prices. In this setting the manufacturer essentially rents shelf‐space from the retailer. We find that in this setting, the retailer may force the adoption of RFID even if it does not maximize the chain's total profit.