When Mcdonal's corp reduced the price of its big mac by 75% if consumers also purchase french fries and a soft drink. the company was hoping the novel promotion would receive 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?
Think of all of the "players" and then think 1) how did McD think they would respond, and 2) how did they actually respond.
The players are: 1) McD corp, 2) McD's competitors, 3) McD regular diners, 4) non-regular diners.
For McD Corp to think their plan would work, they must have thought the promo would bring in non-regulars with no response by competitors or regular diners.
For extra credit, in your answer, discuss whether the players considered the promo to be permanant or temporary.
Lotta luck
Thanks Lotta, it helped
To answer this question using game theory, we need to understand the concept of the prisoner's dilemma, which is a well-known game in game theory. In the prisoner's dilemma, two individuals who are arrested for a crime have the option to cooperate or betray each other. The outcomes of the game depend on the choices made by both individuals.
In the case of McDonald's promotion, we can apply the prisoner's dilemma framework. Let's assume there are two players: McDonald's and the consumers. McDonald's offers a discount on the Big Mac but only if the consumers also purchase fries and a soft drink.
From a consumer's perspective, buying all three items at a discounted price is beneficial. However, consumers might worry that if they cooperate and purchase all three items, McDonald's might not continue the promotion in the long term, or competitors might start adopting similar tactics. This uncertainty can lead consumers to defect from the promotion and only buy the discounted Big Mac.
From McDonald's perspective, it wants to maximize profits by encouraging consumers to buy the entire meal. However, if consumers start defecting and only buy the discounted Big Mac, McDonald's might suffer losses due to the reduced profit margins on individual items.
Based on this analysis, it appears that the disruption to McDonald's plans came from the consumers who saw the opportunity to maximize their own benefits by defecting and only purchasing the discounted Big Mac. This behavior is rational from an individual perspective, but collectively, it leads to a decrease in sales for McDonald's.
It's important to note that this explanation is a hypothetical application of game theory to the given scenario. In reality, the reasons behind the reduction in sales for McDonald's could be more complex and may involve various other factors such as consumer preferences, competition, or external events.