Pricing Strategies in the German Discounter Fitness Industry. The Prisoners’ Dilemma

Thèse de Bachelor , 2018 , 56 Pages , Note: 1,0

Gestion d'entreprise - Direction d'entreprise, Management, Organisation

This paper deals with the question whether the framework of the prisoners’ dilemma applies to the context of pricing in the German discounter fitness industry. It addresses the issue of the prisoners' dilemma and possible solutions. Furthermore, the author assesses the German discounter industry as well as current trends within the industry. The concept of the prisoners' dilemma is applied to the German discounter fitness industry to demonstrate that the pricing strategies of McFit and FitX, Germanies leading players in the discounter fitness segment, can be modelled using the game-theoretical approach. Lastly, a possible solution can be explained by the repetitive nature of the "game".

The fitness industry in Germany developed remarkably in the last one and a half decades. Between 2003 and 2017, the number of active members rose from 4.38 million to 10.61 million making it the most popular sport in Germany concerning members. The main reason for the enormous increase in members is the rising health awareness among the German population. Society further agrees that becoming active and working out has a positive impact on well-being, health, and mobility especially for older adults.

Increasing demand fosters rivalry within the industry as all competing firms want to benefit from the high demand and bind potential customers to long-term contracts. The high interest on the consumer side can result in price wars as the rewards immediately gained from cutting the price are high. Even though price cutting may be beneficial in the short run, the long-run consequences of price wars are decreasing profits within the industry.

The fight on prices seems especially present in the discounter chain segment as gyms are homogenous, and differentiation amongst the competitors in this segment is somewhat limited. Thus, competing on price could be the instrument chosen by firms engaging in the discounter fitness sector to attract new members, increase market share, and raise short-term income while simultaneously putting long-term profitability at risk.

Table of Contents

List of Figures

List of Tables

1 Introduction
1.1 Motivation and Problem Definition
1.2 Research Question and Objectives
1.3 Course of Investigation

2 Theoretical Background
2.1 The Prisoners‘ Dilemma
2.2 The Application of the Prisoners’ Dilemma in Pricing
2.2.1 Example: T-Shirt Retailer
2.2.2 Example: Two Restaurants
2.2.3 Price Wars as a Consequence of Price Cutting
2.2.4 The American Airline Industry as an Example
2.3 Solving the Prisoners’ Dilemma According to Theory
2.3.1 Rewards Approach
2.3.2 Repeated Games
2.3.2.1 Finite Repetition
2.3.2.2 Infinite Repetition
2.3.2.3 General Theory

3 The German Fitness Industry
3.1 General Development Within the Industry
3.2 Market Characteristics of the Chain Segment
3.2.1 Porter’s Five Forces
3.2.2 Defining the Target Firms
3.2.2.1 McFit
3.2.2.2 FitX

4 Application of the Prisoners’ Dilemma to the Fitness Industry
4.1 Rebuilding the Prisoners’ Dilemma
4.1.1 Assumptions for the Model
4.1.2 Mutual Cooperation
4.1.3 Unilateral Defection of FitX
4.1.4 Unilateral Defection of McFit
4.1.5 Mutual Defection
4.2 The Applicability of the Prisoners’ Dilemma
4.3 Solving the Pricing Dilemma of FitX and McFit
4.3.1 Rewards Approach as a Solution
4.3.2 Repetition as a Solution
4.3.2.1 Does Defecting Pay Off for FitX
4.3.2.2 Does Defecting Pay Off for McFit
4.3.3 Outcome and Implication

5 Conclusion
5.1 Comparison with the Real Rivalry Between FitX and McFit
5.2 Limitations and Further Research

6 References

• Université: EBS European Business School gGmbH
• Note: 1,0
• Auteur: Moritz Moerke (Auteur)
• Année de publication: 2018
• Pages: 56
• N° de catalogue: V943445
• ISBN (ebook): 9783346285485
• ISBN (Livre): 9783346285492
• Langue: anglais
• mots-clé: Prisoners Dilemma, Dilemma, Game Theory, Spieltheorie, McFit, Fitness, Fitness Industry, Gefangenendilemma