I'm not sure I see the light here....Can the economyst help me super size this?!?!?!
Thanks!
2) When McDonald’s Corporation reduced
its price of the Big Mac by 75% 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 US 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?
ANSWER:
McDonald’s needed to know their
industry inside and out before the
game theory can bevaluable. The
needed to understand entry curves.
Without that understanding the
answer you get from the game theory
may be wrong.
First off, I disagree with your opening statement; I think game theory can be a useful analytic tool for, even with imperfect knowledge. Further, many decisions are made using "game-theory" techniques, even if the decision maker is unaware of any formal game-theory type models. (just as a pool player doesnt need advanced geometry/trigonometry to be a good pool player, a business manager doesnt need to be formally educated in game theory to apply game theory techniques to his decision making.) We all make decisions with imperfect information -- that's just a fact of life. And if we waited until we had full or nearly full information, we would never decide anything.
Game theory, in economics, is largely about how other players are likely to respond to decisions or indecisions by a particular player. Often the expected response is an educated guess.
Now you need to get specific. I can, off the top of my head, see several game-theory type applications to your McD's marketing ploy. First, by lowering the price of Big Macs, McD's current customers would likely switch and buy more Big Macs and less of something else. What is the size of this shift? Second, lowering the price of Big Macs would draw in new customers. How much new sales are being generated. Third, McD's competitors may respond to this promotion with a promotion of their own. Fourth, did customers or competitors view McD's price change as a permanent change or just a temporary promotion?
So, take it from here....
FYI, I will be taking some time off starting this weekend. I probably wont visit the Jiskha site for at least a week, maybe more.
To analyze the problem using game theory, we can start by considering the players involved and their potential strategies and reactions.
The players in this scenario are McDonald's Corporation, its customers, and its competitors. The potential strategies include the price reduction of the Big Mac, the purchasing of french fries and a soft drink alongside the Big Mac, and the competitors' responses.
To determine the potential response of McDonald's customers, we need to consider their preferences and their perceptions of the promotion. Did they view the price reduction as a temporary promotion or a permanent change in pricing? How significant was the discount in their decision-making process?
Next, we should analyze the potential response of McDonald's competitors. If the competitors believed that the price reduction was a significant threat to their market share, they might respond with their own promotional offers or price adjustments. This would affect the overall demand for fast food and could potentially undermine McDonald's plans.
It is important to consider the elasticity of demand for Big Macs and the complementary products (french fries and soft drinks). The change in price and the perception of value associated with the promotion might have affected the overall demand for these products, both for current and new customers.
In summary, to determine what disrupted McDonald's plans, we would need to gather information on the following aspects:
1. Customers' reactions to the promotion and their behavioral changes in response to the price reduction.
2. Competitors' responses and their impact on the market.
3. The elasticity of demand for Big Macs, french fries, and soft drinks in relation to the price changes.
4. The duration and perceived permanence of the promotion.
By analyzing these factors and using game theory principles, we can gain insights into why McDonald's plans did not succeed as anticipated. Keep in mind that this is a high-level overview, and further research and analysis may be required for a more comprehensive understanding of the situation.