Starbucks cups and Dunkin' donuts chess pieces on a chessboard, representing strategic market competition.

Dynamic Decisions: Can Starbucks and Dunkin' Teach Us About Game Theory and Economic Modeling?

Nico Varela in Business & Economy December 2025 • 4 min read.

"Dive into the complexities of market strategy with Starbucks and Dunkin', exploring dynamic games, information influence, and how economic models adapt to real-world uncertainty."

In the fast-paced world of business, understanding the strategies that drive decision-making is crucial. Game theory, a framework for analyzing strategic interactions, provides valuable insights into how companies navigate competitive environments. This is particularly evident in dynamic markets where firms constantly adapt to each other's moves and evolving conditions.

A fascinating case study of dynamic decision-making can be found in the competition between Starbucks and Dunkin', two of the largest coffee chains in the United States. Their ongoing battle for market share offers a real-world illustration of how businesses make strategic choices under uncertainty and in response to their rivals. By examining their entry and exit decisions, we can gain a deeper understanding of the economic forces at play.

Recent research has focused on refining our understanding of these dynamic games, particularly when information is incomplete or uncertain. One innovative approach involves using 'Markov correlated equilibrium,' a concept that helps economists model situations where companies might have access to more information than initially assumed. This method allows for a more robust analysis of strategic interactions, accounting for the complex ways information influences market behavior.

What is Markov Correlated Equilibrium and Why Does It Matter?

Starbucks cups and Dunkin' donuts chess pieces on a chessboard, representing strategic market competition.

Markov correlated equilibrium is a game theory concept that extends the idea of Bayes correlated equilibrium to dynamic settings. In simpler terms, it's a way of modeling how companies make decisions over time when they have some information about the market and their competitors, but not complete knowledge.

Imagine a scenario where Starbucks is considering opening a new store. They have information about their own potential profits, but they're also trying to guess what Dunkin' might do. Markov correlated equilibrium allows us to model this situation by considering all the possible scenarios and how Starbucks' decisions might change based on different signals or information they receive.

It helps economists understand the range of possible outcomes in a dynamic game.
It provides a more realistic framework for analyzing strategic interactions when information is incomplete.
It offers a way to make predictions about market behavior even when companies have access to more information than we might initially assume.

Markov correlated equilibrium becomes crucial when examining the informational robustness. It allows the analyst to capture the set of all predictions that can arise in a scenario. It attains a form of informational robustness that allows the analyst to be agnostic about the players observing additional signals after specifying players' minimal information.

The Future of Understanding Dynamic Markets

The study of dynamic games and the application of concepts like Markov correlated equilibrium offer a powerful toolkit for understanding the complexities of market behavior. As our ability to model these interactions improves, we can gain deeper insights into the strategies that drive business success and the economic forces that shape our world. The ongoing competition between Starbucks and Dunkin' serves as a compelling reminder of the importance of strategic decision-making in a dynamic and ever-changing landscape.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2205.03706,

Title: Identification And Estimation Of Dynamic Games With Unknown Information Structure

Subject: econ.em

Authors: Konan Hara, Yuki Ito, Paul Koh

Published: 07-05-2022

Everything You Need To Know

How does game theory help us understand the competition between Starbucks and Dunkin'?

Game theory provides a framework for analyzing the strategic interactions between Starbucks and Dunkin'. It helps us understand how they make decisions in a competitive environment, such as entry and exit decisions, by modeling these choices as part of a dynamic game. This allows us to examine how each company anticipates the other's moves and adapts its strategies accordingly, thus revealing the economic forces at play in their ongoing competition for market share.

What is a dynamic game in the context of Starbucks and Dunkin'?

A dynamic game, in the context of Starbucks and Dunkin', refers to the continuous and evolving strategic interactions between the two coffee chains. It involves a sequence of decisions and responses, where each company's actions at one point in time influence the other's strategies in the future. This ongoing process includes choices like store openings, pricing strategies, and marketing campaigns, all of which are made under conditions of uncertainty about the competitor's next move and changing market conditions.

What is Markov correlated equilibrium, and why is it relevant to studying the Starbucks and Dunkin' rivalry?

Markov correlated equilibrium is a game theory concept that helps economists model strategic interactions in dynamic settings, especially when companies have incomplete information. It extends the idea of Bayes correlated equilibrium to situations where companies like Starbucks and Dunkin' make decisions over time, with some knowledge about the market and competitors, but not complete certainty. It's relevant because it provides a more realistic framework for analyzing how these companies make decisions, considering the complex ways information influences their market behavior and helps predict potential outcomes.

How can the concept of 'information influence' shape the market strategies of Starbucks and Dunkin'?

Information influence significantly impacts Starbucks and Dunkin' market strategies. Both chains constantly gather and analyze information about consumer preferences, competitor actions, and market trends. The way they interpret and react to this information shapes their decisions. For instance, if Starbucks gets a signal that Dunkin' is planning to launch a new product in a specific area, Starbucks might adjust its own marketing strategy or accelerate the rollout of a similar product. This creates a competitive environment where information asymmetry and the ability to quickly respond to new information are crucial for success.

How does economic modeling, particularly using Markov correlated equilibrium, contribute to understanding the competitive landscape of Starbucks and Dunkin'?

Economic modeling, particularly through concepts like Markov correlated equilibrium, provides a powerful tool to dissect the competitive dynamics between Starbucks and Dunkin'. It allows economists to create scenarios that incorporate incomplete information and strategic decision-making over time. By using this approach, analysts can better understand the range of possible outcomes in their interactions and how factors such as market conditions, consumer behavior, and competitive reactions influence their strategies. Moreover, it allows for the examination of how each chain can make predictions and assess market behavior, even with access to more information than initially perceived, thus leading to a more in-depth understanding of the forces that shape market share and profitability.