Starbucks, Beating The Prisoners Dillema Brooke Hatcher Econ 202 April 28 th, 2012

Game theory The branch of mathematics concerned with the analysis of strategies for dealing with competitive situations where the outcome of a participant's choice of action depends critically on the actions of other participants. Game theory has been applied to contexts in war, business, and biology

Game Theory Key terms Dominant strategy: Which strategy is better than the other strategy, no matter what the other component decided in his strategy. Dominated strategy: The certain choice is superior in every situation, then picking the optional choice. Simultaneous game: all players move at the same time, represented with a game table.

Prisoner's Dilemma What is the prisoners dilemma? How does it apply to the game theory in Starbucks marketing? When competion of people, or business need to make a strategy move that plays in their favor. There is three possible scenarios. Definition: (in game theory) A situation in which two players each have two options whose outcome depends crucially on the simultaneous choice made by the other, often formulated in terms of two prisoners separately deciding whether to confessor not confess, will serve them less time In prison.

Prisoners Dilemma (part of Game theory) A main point is prisoners dilemma, it trying to figure out what the other flayer (food company) will do, and what play they should make, depending on thief other companies move, for their best outcome “strategy”. A main point is prisoners dilemma, it trying to figure out what the other flayer (food company) will do, and what play they should make, depending on thief other companies move, for their best outcome “strategy”. Definition: A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner’s dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process. Definition: A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner’s dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.

Key concept is Game Theory Nash Equilibrium: In game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his own strategy unilaterally[1] :14. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium. The practical and general implication is that when players also act in the interests of the group, then they are better off than if they acted in their individual interests alone.game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his own strategy unilaterally[1] :14. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium. The practical and general implication is that when players also act in the interests of the group, then they are better off than if they acted in their individual interests alone.

The Prisoner’s Dilemma in food companies using media and marketing 1.Both food companies decide not spend their money in marketing, they will both overall spend less, yet receive same amount of high customers. 2. If one food company decided to spend an excessive amount more in marketing (such as posters, TV commercials) they receive more of the markets customers, then the other food company who didn’t spend their money in media. 1.Both food companies spend an excessive amount in media for, they both fear that the worst outcome would be not putting money into media, while the other did and received more of the markets customers

Prisoners Dilemma table Both players in the dilemma end up loosing to stay even. “as if their fighting for prison time Both players in the dilemma end up loosing to stay even. “as if their fighting for prison time As you see, each number (choice) is affected by the decision the other person makes, whether to stay quiet, or to rat out. As you see, each number (choice) is affected by the decision the other person makes, whether to stay quiet, or to rat out. The dilemmas!: one person doesn’t know what the other ones decision will be. Therefore, both will pick the dominant strategy in rating out. The dilemmas!: one person doesn’t know what the other ones decision will be. Therefore, both will pick the dominant strategy in rating out. The Prisoners Dilemma table always represents the opponents decision, by the row and Coolum. The players utility of each move, when the opponent makes a certain decision (taking in to account the opponents decision) is displayed by the number. The Prisoners Dilemma table always represents the opponents decision, by the row and Coolum. The players utility of each move, when the opponent makes a certain decision (taking in to account the opponents decision) is displayed by the number. The first number in each cell represents the years of jail time for Bob if he makes that decesion, the second numbers in each column represent the years of jail ted will receive if he makes that decesion. The first number in each cell represents the years of jail time for Bob if he makes that decesion, the second numbers in each column represent the years of jail ted will receive if he makes that decesion. Ted rats out Ted stats quiet Bob rat’s out 5,51,8 Bob stays quiet 8, 12, 2

Starbucks “The Perfect Cup of Coffee” Starbucks beat the prisoners dilemma by not following the rend of marketing/media. The company invested their money not in the quality of their product. From this they hoped popularity, number of customers, and large share of the market would come by “word of mouth” of their quality and service their small business produced (now biggest coffee company in the world). Starbucks beat the prisoners dilemma by not following the rend of marketing/media. The company invested their money not in the quality of their product. From this they hoped popularity, number of customers, and large share of the market would come by “word of mouth” of their quality and service their small business produced (now biggest coffee company in the world).

Graphical representation of Food Companies The table displays that both companies cant afford, not to spend in media, for If one does, and the other decides not to, they will loose a large market share of customers. Food Companies. marketing McDonalds, invest most money into media McDonal ds does not invest money in media Domino’s invest money in media marketing 2.4, , 1.0 Domino does not invest money into media 1.0, , 2.0

Starbuck’s Beating the Prisoners Dilemma This graph of numbers displays, even though Starbuck spends the least in media marketing, their share of the market ratio is the largest! This graph of numbers displays, even though Starbuck spends the least in media marketing, their share of the market ratio is the largest! Starbuck saves incredible amounts of money, by beating the prisoners dilemma in food companies use of marketing media, by investing in other business qualities of product, service, and creating a customer community to spread the word and popularity of their business. Starbuck saves incredible amounts of money, by beating the prisoners dilemma in food companies use of marketing media, by investing in other business qualities of product, service, and creating a customer community to spread the word and popularity of their business.

The success of Starbuck through non- media techniques Quality of the product= “the perfect cup” Quality of the product= “the perfect cup” Environment of business “third place” an escape from work and stress Environment of business “third place” an escape from work and stress Customer satisfaction Customer satisfaction Innovation Innovation Services speech for them selves “ brand marketing” Services speech for them selves “ brand marketing” Creating smart partnerships Creating smart partnerships Establishing a “starbucks community” Establishing a “starbucks community”

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