The Coffee Shop Dilemma
Imagine two competing coffee shops, 'The Daily Grind' and 'Bean There,' are the only two coffee providers on a busy street. Each owner must independently decide whether to set their price for a standard coffee at a 'High' level ($4) or a 'Low' level ($2). If both set a High price, they each make a profit of $200 per day. If both set a Low price, they each make a profit of $100 per day. If one sets a High price and the other sets a Low price, the Low-priced shop will attract all the customers and make a profit of $300, while the High-priced shop makes $0 profit.
Analyze this situation from the perspective of one of the shop owners (e.g., the owner of The Daily Grind). Explain the thought process this self-interested owner would likely go through to make their pricing decision. What is the most probable outcome for both shops, and why might this outcome be considered undesirable for the owners as a group?
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Introduction to Microeconomics Course
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CORE Econ
Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
Cognitive Psychology
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