1. 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 did not. Within two weeks sales had fallen.Using your knowledge of game theory,what do you think disrupted McDonald's plans?

2. The well-known nationally syndicated columnist David Broder reported the recent findings of two academic political scientists. These scholars found that voters are quite turned off by "negative campaigns" of politicians. Many people went as far as not voting because of this. Nevertheless, the political scientists noted it is futile to urge candidates to stay positive. The damage from staying positive is heaviest when the opponent is attacking. Explain the dilemma in terms of strategic behavior.

3. STIHL, Inc., manufactures gasoline-powered chain saws for professional, commercial, farm, and consumer markets. To "better serve" their customers, STIHL offers its chain saws in four different quality lines and associated price ranges: occasional use, mid-range, professional, and arborist. Under what circumstances could offering multiple qualities of a product be price discrimination? What form of price discrimination might this representfirst-, second-, or third-degree price discrimination? Explain why this practice could increase profit at STIHL.

4. Price discrimination sounds like a socially "bad" thing. Can you think of any reasons why price discrimination could be viewed as a socially "good" thing?

5. In the mid-1990s, long before September 11, 2001, airlines began requiring photo identification to check baggage and board flights, claiming their fervent commitment to secure and safe air travel. Do you think the airlines implemented this policy because they could foresee the coming terrorist threat to aviation? What might be a more plausible explanation for the airlines' early commitment to photo identification?