McDonald’s (MCD) respects or fears Tim Hortons (THI). Traditionally at this time of year, Canadian Coffee shop Tim Hortons has a roll up the rim to win contest. You buy a coffee, roll up the cardboard rim and see if you get a prize. Usually another coffee or donut. Sometimes serious cash prizes and cars. During this time frame Tim Hortons gets lots of buzz in its markets. McDonald’s has countered with free coffee for the exact same time. Basically a small scale price war in the coffee category.
The idea for both is to get customers accustomed to coming in and buying something regularly. The idea for McDonald's is to slap down this competitor before it becomes a strategic threat. In the meantime free coffee at McDonald's’s. Watch for more skirmishes. Hopefully the competitive strategy will have a better thought process than just free coffee.
When your only substantive response is price it does not create confidence.
Author's disclosure: I do not own any MCD or THI at the time of writing or for a five day period before or after.