Question

Write the word or phrase that best completes each statement or answers the question.

Refer to Figure 2 Use the decision tree to determine whether Pizza Hut should deter (prevent) Domino's from entering the market for offering pasta salad. Assume that each firm must earn a MINIMUM of 25% return on investment to break even. Explain Pizza Hut's decision process.

Figure 13-2 Rates of Return Pizza Hut Domino's Enter Domino's 28% Enteror DontEnter $7.49 Don't Enter Rates of Return Pizza Hut Domino's Pizza Hut Decision: Charge High Price 45% or LowPrice Rates of Return Pizza Hut Domino's Enter Domino's $4.99 DontEnter Rates of Return Pizza Hut Domino's Don't

Answer 1

The game will be solved by backward induction

Dominos will enter if Pizza Hut charges higher price and should not enter if Pizza Hut doesnot charge high price

After knowing this, Pizza Hut best strategy is to charge lower price and then dominos will not enter.

Thus Pizza Hut will Earn 30% rate of return and Dominos will not enter