Two competing coffee shops, A and B, are deciding whether to offer a discount to attract more customers. If both offer discounts, they split the market and both have average profits. If neither offers a discount, they maintain their current profits. If one offers a discount while the other does not, the discounting shop attracts most customers, resulting in higher profits for the discounting shop and lower for the other. Which of the following best describes the dominant strategy for both coffee shops?

In this situation, the dominant strategy for both coffee shops is to offer a discount. This is because if one shop offers a discount while the other does not, the discounting shop will attract most customers and earn higher profits. If both shops decide to offer discounts, they will end up sharing the market and making average profits, which is still better than risking losing customers by not offering a discount. Therefore, each shop is better off choosing to offer a discount regardless of what the other does. For example, if coffee shop A offers a discount and shop B does not, A will likely gain many more customers and significantly increase its profits.