1. In my opinion, Northwest Airlines decision to initiate the promotion Grown-Ups With Kids Fly Free was right.

At the start, Northwest Airlines had two routes to take. To introduce a promotion or not to introduce the promotion and carry out with its routines. From this game tree scenario, Northwest Airlines (NA) is the first player and American Airlines (AA) is the second player. Assuming that the profit is [25] for both airlines, NA would ultimately choose to introduce the promotion as it knows that on economic terms, AA will choose not to introduce with any promotions as it will not want to incur losses. However, as quoted from American spokesperson, (Besanko, D. 1992. para.3.) We were merely responding to Northwest. We have said over and over again that when other competitors undercut us, we will be competitive. Hence this means the AA will be introduce a promotion to disrupt the market and NAs promotion. Thus, bringing us to the first scenario in which both companies will result in a loss (The Airline Price War). However, it is not the decision of that NA that caused the Price war. As we look at the 2nd outcome of the game tree, in which NA will be higher than AA, AA threats to introduce a new promotion to compete with NA is not credible as on economics terms, AA will then be making a loss if it introduces. Hence, NA will still choose to introduce the promotion. Thus I feel that NA decision to was a right one.