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Analyzing the proliferation of item‐level RFID, recent studies have identified the cost sharing of the technology as a gating issue. Various qualitative studies have predicted that conflict will arise, in particular in decentralized supply chains, from the fact that the benefits and the costs resulting from item‐level RFID are not symmetrically distributed among supply chain partners. To contribute to a better understanding of this situation, we consider a supply chain with one manufacturer and one retailer. Within the context of this retail supply chain, we present analytic models of the benefits of item‐level RFID to both supply chain partners. We examine both the case of a dominant manufacturer as well as the case of a dominant retailer, and we analyze the results of an introduction of item‐level RFID to such a supply chain depending on these market power characteristics. Under each scenario, we show how the cost of item‐level RFID should be allocated among supply chain partners such that supply chain profit is optimized.
Gaukler et al. (Mon,) studied this question.