Question

Suppose that two companies are independently deciding whether to continue using bar codes or switch to RFID tags to monitor the flow of products. Many suppliers sell to both companies and using only one system is much less costly for them. Both companies would rather coordinate than not, however the first company has a preference for continuing using bar codes over switching to RFID tags, while the second company has a preference for switching to RFID tags. The two companies must commit to a standard before learning the standard chosen by the other.

a) Illustrate this strategic interaction as a game in normal form assigning payoffs that are consistent with the narrative.

b) Illustrate the game both using a matrix and a decision tree.

c) Find the two firm’s best responses and illustrate them in a best response diagram.

d) What is (are) the Nash equilibrium(s) of this game?

Answer 1

In Germany, a group of companies under the auspices of the METRO Group Future Store Initiative have been testing a number of RFID-based applications, ranging from the manufacturing factory line all the way to the store shelf, using RFID tags on pallets, cases, and, in some cases, individual products. And although the use of RFID is at a limited scale, the involvement of multiple manufacturing partners, different classes of products and applications at the factory, warehouse, distribution center, stockroom, and shelf provide perhaps the most comprehensive look at how the use of RFID impacts the infrastructure, processes, and relationships in a retail deployment

Its dominant position in the industry, it requires its upstream top suppliers to adopt RFID technology which will facilitate operations towards the downstream (e.g. distribution, wholesale, and retail) (RFID Journal, 2003; Huang et al., 2008). RFID is also widely used in facilitating:

? electronic transaction (e.g. Toll collection A, Octopus card (Hong Kong), or Oyster card (London)

? logistic and supply chain management (e.g. the internet of things)

? manufacturing and assembly (e.g. the assembly of cars)

? express service (e.g. American Express)

? scientific research (e.g. tracing snakes and migratory birds);

? medicine (e.g. identifying a specific patient), and

? security (e.g. access control).

there are two apparel stores, each containing 15,000 items. The cost of the bar codes in Store A, at half a cent apiece, would be $75. The cost of theRFID tags in Store B, on the other hand, would be $750 at five cents—but just to be sure, let's use a figure of $1,500, since the cost might be closer to 10 cents. In the course of a year, let's say each company sells 250,000 items. The cost of the bar codes for Store A would be $1,250, while the RFID tags for Store B would cost $25,000. Bar codes look like a much better deal, sure—but remember, neither store has yet taken inventory.

The tracking abilities of RFID are used in many industries. For exam-ple, pharmaceutical companies have embedded RFID chips in drug containers to track and avert the theft of highly controlled drugs. Airlines use RFID tags to track passenger bags; many tolls roads use RFID technology to collect fees without the need for toll booth per-sonnel; ExxonMobil, and other petrol companies, uses RFID technol-ogy for its “SpeedPass" which instantly collects payment at garages using a tag on a driver's keychain, and; the UN uses RFID technology to track the movements of its personnel. The car and aircraft manu-facturers require their supply chain to add permanent RFID tags to all the components. The tags are designed to remain with the parts through their lifecycle. If a component is replaced, both the old and new components will be scanned enabling a record to be kept.

The RIBA Plan of Work (2013) copes with new build, extensions and refurbishments. Auto-ID can provide an over-arching tool that links the Plan of Work sequence by integrating data and information, and by providing the feedback loops that are currently missing. There is little /no feedback to the design team of the facility in use. For civil and envi-ronmental engineering, the design sequence will follow a similar path to the building project with more focus on the technical design and production information.

Example:- Now let's say you're Store C. By installing an RFID system and taking inventory twice a day, you could boost your sales by 14 percent. That's an additional 35,000 items, assuming 250,000 items were sold annually before you implemented RFID. At an average selling price of $10, you would make an additional $314,200 every year ($350,000 in additional sales, minus $32,300 for RFID tags and labor on the original 250,000 items, and $3,500 in tags for the additional sales).