Home » Market and Competition in Pricing Strategy » Two bakeries make most of their money on wedding cakes, and competition each summer wedding season is brutal. What long term strategy would most likely work best in this game between the two bakeries?

Two bakeries make most of their money on wedding cakes, and competition each summer wedding season is brutal. What long term strategy would most likely work best in this game between the two bakeries?

Bakery 2 should make an aggressive move first in order to capture the most market share and continue with aggressive follow-up moves in response to Bakery 1.

Bakery 2 should cooperate with Bakery 1’s first move, and on the next move it should do what Bakery 1 did on its previous move.

Bakery 1 should play nice and avoid all aggressive moves, because in the long run that will be most profitable.

For the first two periods of the game, Bakery 2 should make aggressive price cuts and then it should cooperate with Bakery 1.

Bakery 2 is using the tit-for-tat strategy, which research shows is the most successful across a variety of disciplines and ultimately has the highest pay offs.

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