A couple of years ago, in a move that surprised some industry watchers, Starbucks cut the price of bags of coffee sold in grocery stores by 10% (equivalent to about $1 per bag). Starbucks acknowledges that it will lose profit in the short run, but believes it will gain more grocery store customers in the long run. Starbucks and their closest competitor, Dunkin Donuts, estimate the following payoff matrix for their pricing strategies for the next quarter. Note: Dunkin' Donuts payoffs are the first number in the cell; Starbucks payoffs are the second number in the cell in the cell. Dunkin' Donuts Price High Price Low Price High 80,90 90,80 Starbucks Price Low 75, 110 65,90

A couple of years ago, in a move that surprised some industry watchers, Starbucks cut the price of bags of coffee sold in grocery stores by 10% (equivalent to about $1 per bag). Starbucks acknowledges that it will lose profit in the short run, but believes it will gain more grocery store customers in the long run. Starbucks and their closest competitor, Dunkin Donuts, estimate the following payoff matrix for their pricing strategies for the next quarter. Note: Dunkin' Donuts payoffs are the first number in the cell; Starbucks payoffs are the second number in the cell in the cell. Dunkin' Donuts Price High Price Low Price High 80,90 90,80 Starbucks Price Low 75, 110 65,90

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter15: Oligopoly And Strategic Behavior

Section: Chapter Questions

Problem 14P

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