Abstract: The Radio Frequency Identification (RFID) has got a great deal of development and application, however it still has not been implemented in gray market research. It is generally known that gray market has its concealment and complexity which makes it difficult to capture the related information, while RFID provides approach and technical method in addressing this problem. A supply chain with a retailer and a manufacturer who sells a single product in two separate markets is investigated: high-end market and low-end market. The manufacturer sells products directly to the consumer in high-end market, whereas the products are sold to the consumer in low-end market through the retailer. The gray market will be formed once the retailer diverts the products into the high-end market. RFID technology is first introduced into gray market which enables the manufacturer to capture the gray market information. Then a pure strategy game model is established based on manufacturer RFID strategies (adopting or not adopting) and retailer diverting strategies (fleeing or not fleeing), and four different strategy combinations of (N, N), (N, F), (A, N), (A, F) are analyzed, where (N, F) means manufacturer does not adopt RFID technology and retailer flees product. Finally the impact of RFID technology on the gray market and is analyzed the solution of Nash equilibrium is acquired. The results show that fleeing goods is retailer's dominant strategy, and the manufacturer's strategy of RFID technology depends on the penalty cost of fleeing goods and the cost of RFID technology. It is also found that both RFID technology and gray market will lower the total social welfare level.

Key words: supply chain management, gray market, RFID technology, traceability, Nash equilibrium