December 25, 2002 BY ALEX VEIGA - ASSOCIATED PRESS

MIAMI -- When Richard Steinig opened his first of four south Florida McDonald's restaurants in the 1970s, the fight for burger chain supremacy could be summed up this simply: Which was tastier -- the Big Mac or Burger King's Whopper?

Thirty years later, No. 1 McDonald's Corp. and No. 2 Burger King are still brawling. But profits are being sapped by discounts and menu duels, not to mention competition, a saturated market and changing tastes.

"You can't make money selling a Big N' Tasty at $1," Steinig said. He was referring to the chain's biggest quarter-pound burger, which is supposed to sell for more than $2 but has been discounted since October. ...

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1. From this article would you say that McDonald's and Burger King are colluding? Why (not)?
2. Create a game theory payoff matrix that illustrates a prisoner's dilemma for these two stores. Create (make-up) "profits per day" numbers below to illustrate... assume they each earn $0 when they both charge $1; they each earn $1000 per day if they both charge $2; and they can force negative profits on the other if they undercut them as well as make even more than $1000 by taking over market share. Replicate this matrix and fill it in:

Payoff Matrix for selling HamburgersBK Charges $1BK Charges $2McD Charges $1BK:

McD:

BK:

McD:

McD Charges $2BK:

McD:

BK:

McD: