When McDonald’s Corp. reduced the price of its Big Mac by 75 percent if customers also purchased French fries and a soft drink, The Wall Street Journal reported that the company was hoping the novel promotion would revive its U.S. sales growth. It didn’t. Within two weeks sales had fallen. Using your knowledge of game theory, what do you think disrupted McDonald’s plans?

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If we use game theory to examine this problem, the main points to consider are:

1. Who are the other players?

2. What are their likely responses to McDonald's Corporation's move?

The other players in this case are McDonald's Corporation's competitors: Burger King, KFC, Wendy's etc., and the customers of...

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If we use game theory to examine this problem, the main points to consider are:

1. Who are the other players?

2. What are their likely responses to McDonald's Corporation's move?

The other players in this case are McDonald's Corporation's competitors: Burger King, KFC, Wendy's etc., and the customers of these fast food outlets. One might subdivide the second group into the regular customers of McDonald's and the customers who regularly prefer McDonald's' competitors.

The fast food market is extremely competitive. One must assume that McDonald's' competitors will respond to their move by creating their own special offers. If these offers are more appealing to customers than McDonald's' offer, then it is to be expected that McDonald's' sales will fall as an overall result of all the offers, with both customer groups more often choosing their competitors.

Although 75% is a very deep discount, the requirement to buy fries and a soft drink might make the offer less attractive to customers, some of whom could be confused by the terms. They might, for instance, think they were getting 75% off their whole meal, then be unpleasantly surprised by the total price. There is also a built-in discount when purchasing a hamburger, fries and drink, so it might not be clear how much greater this new discount was than the total price of such a meal. A competitor would only have to come up with a simpler offer, such as 50% off all hamburgers, whatever else is purchased, or a straight 30% off all food for many customers to find their discount more attractive.

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