Fast food trains have found that $0.99 is a terrific way to draw customers to your door. Once there, the predictable "up sale" occurs - customers buy other items such as drinks, etc. Fast food chain like Wendy's also created / followed the $0.99 menu, in reaction or causing reactions from Burger King and McDonald's.
But as the focus on revenue growth continues, the $0.99 menu was unsustainable or hampering growth. The power of $0.99 can't be ignored, though. How do you rectify? A bean counter will probably and predictably do this:
1. decrease the number of items available on the $0.99 menu to force buyers to buy high priced items
2. decrease the serving size of the items available on the $0.99 menu to force them to buy MORE $0.99 items
3. price creep original $0.99 items to $1.29, but add lower cost replacement items to $0.99
If Wendy's did this unilaterally devaluing the $0.99 menu, they will lose business to Burger King and McDonald's. Somehow with a little game theory, Burger King and/or McDonald's started the first move to reduce the $0.99 menu. With that first move, Wendy's followed as well.
Wendy's
| Devalue | Don't
M ---------+------------+-----------
c Devalue | 5 5 | 7 2
D ---------+------------+-----------
Don't | 2 7 | 1 1
So if McDonald's devalue their $0.99 meal unilaterally (make it less attractive), Wendy's will benefit at (7,2). But Wendy's will be selling lots of cheap $0.99 burgers - not really helpful to profit. With the same pressure as McDonald's on profit, Wendy's will also devalue their $0.99 menu, and bringing it to the (5,5) equilibrium.
Net result is high profits for Wendy's, Burger King, and McDonald's.
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