Week 12 Discussion — Who Wins When Rivals Cannot Cooperate? — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Hook

Two coffee shops facing each other would both earn more if both kept their prices high, yet each one's own best move drags both to the low price, and their customers pay less as a result. Many slightly different shops on one street cost buyers a little more than one more cup or repair costs to make, and give them variety in return. This week you argue about whether those outcomes are good news, and for whom.

Your discussion question — choose Option A or Option B; they carry the same weight and the same rubric, and you say which you picked.

Option A: In the course's illustrative pricing game, two coffee shops each choose a high or a low price. Low is each shop's dominant strategy, so they land at the Nash equilibrium, (low, low), earning 6 thousand dollars a month each, though both would earn 10 at (high, high). One view holds that this prisoner's dilemma is good news for a neighborhood: customers pay the low price, and the shops still earn a profit. Another view holds that it is a worry: thinner margins leave less room to pay staff, improve the shop, or ride out a slow month. Is the shops' failure to cooperate good or bad for the neighborhood as a whole, and why? Keep your positive claims (what the model predicts) apart from your normative ones (what ought to happen).

Option B: Pick a kind of business near you that has many slightly different sellers, such as hair salons, restaurants, gyms, or repair shops. In monopolistic competition each seller charges a price above its marginal cost and stays a little smaller than its cheapest size, yet entry drives its economic profit to zero and buyers get variety. Would your community be better served by many varied sellers or by a few larger, more uniform ones that might charge less? Describe in words what each seller offers that the others do not, label which parts of your answer are positive claims and which are normative judgments, and say what fact would change your mind. Do not invent prices, profits, or statistics; describe what you know firsthand.

There is no single right answer. Reasonable people weigh lower prices, variety, and the health of local businesses in different ways. Pick the one you actually care about, and tell us your reasoning.

Expectations

Activity format: one initial post followed by two substantive peer replies. Plan on about 45 minutes across the two deadlines; your instructor sets both due dates in Canvas.

Your initial post — by the first due date (early in the module week):

• Say which option you chose.
• For Option A, say whether the shops' failure to cooperate is good or bad for the neighborhood, using the game's numbers (6 each at the Nash equilibrium, 10 each at (high, high), and a gain of 4 for a shop that cheats on a price-fixing deal); for Option B, name the kind of business and describe in words what makes each seller different from the others.
• Give the strongest version of the view you disagree with in one or two sentences, and say why you still hold your position or what part of the other view you accept.
• Use at least two of this week's terms (dominant strategy, Nash equilibrium, prisoner's dilemma, product differentiation, zero economic profit) correctly.
• Label at least one of your claims as positive (what the model predicts) and at least one as normative (what ought to happen).
• Length: roughly 150–250 words if written. You may instead record your post as audio or video (about two minutes) and attach a transcript; both forms are scored by the same rubric.

Your replies — by the second due date (the end of the module week):

• Reply substantively to at least two classmates.
• A substantive reply does more than agree: point out where a post treats (high, high) as the Nash equilibrium, check whether a post reads zero economic profit as earning nothing, or argue the other side of the question at its strongest. "Nice point!" on its own does not count.

What a strong post looks like:

I chose Option A. The positive part: in the model, low is each shop's dominant strategy, because 14 beats 10 and 6 beats 4, so the shops settle at (low, low) and earn 6 each instead of 10. The normative part: I think that is good for the neighborhood, because every customer pays the lower price and both shops still earn a profit. The strongest objection is that thinner margins leave less money to keep good staff through a slow month. I accept part of that, so I would want to know how close the shops are to closing before I called the outcome good for everyone.

Notice how it finds the dominant strategy by comparing within each column, keeps the Nash equilibrium apart from the outcome that pays the shops the most, labels the positive and the normative parts, and gives the other side its strongest form. Someone who argued that the price war hurts the neighborhood as carefully would meet the same bar.

Participation rubric

This discussion is worth 10 points. The three criteria below look at your initial post and your peer replies.

Post early if you can — the best threads happen when people have time to reply before the second due date.

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