Radio-frequency Identification (RFID) adoption and chain structure decisions in competing supply chains: Bertrand competition versus Cournot competition

We investigate the RFID adoption and chain structure (i.e., integrated or decentralized) decisions in two supply chains under two competition modes (i.e., Bertrand or Cournot competition). Each chain consists of a manufacturer and an exclusive retailer, who suffers from inventory misplacement problem. Two supply chains first simultaneously choose chain structure and then decide whether to invest in RFID technology. We develop an analytical model to derive the equilibrium outcomes, then further analyze the interactions between RFID adoption and chain structure under two competition modes. We find that in equilibrium, both chains prefer to choose integration under Cournot competition, while they might be better off from decentralization under Bertrand competition. Moreover, there may exist a prisoner’s dilemma for the equilibrium strategies on RFID adoption and chain structure. Specifically, when both chains adopt RFID, the prisoner’s dilemma occurs if the competition is fierce; when only one chain adopts RFID, the chain who forgoes RFID adoption is easier to trap into the prisoner’s dilemma; when no chain adopts RFID, a high misplacement rate may aggravate the prisoner’s dilemma if the competition is weak, and the supply chain members under Cournot competition may escape such dilemma if the competition is fierce. In addition, competition mode doesn’t affect the optimal strategies for RFID adoption and chain structure. Further, in the case where the manufacturer affords a higher production cost, Cournot competition is more conducive to coordinate chains when competition is weak or relatively fierce, whereas Bertrand competition will be more effective when competition is moderate or very fierce.