Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King both are considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. McDonald's will choose between building a large store and building a small store. Once McDonald's has made its decision about the size of the store it will build, Burger King will decide whether to enter this market. Use the following decision tree to decide the optimal strategy for each company. Does your answer depend on the rate of return that owners of fast-food restaurants must earn on their investments to break even? Briefly explain.
