The following appeared as part of a memorandum from the loan department of the Frostbite National Bank:
“We should not approve the business loan application of the local group that wants to open a franchise outlet for the Kool Kone chain of ice cream parlors. Frostbite is known for its cold winters, and cold weather can mean slow ice cream sales. For example, even though Frostbite is a town of 10,000 people, it has only one ice cream spot—the Frigid Cow. Despite the lack of competition, the Frigid Cow’s net revenues fell by 10 percent last winter.”
Discuss how well reasoned you find this argument. In your discussion be sure to analyze the line of reasoning and the use of evidence in the argument. For example, you may need to consider what questionable assumptions underlie the thinking and what alternative explanations or counterexamples might weaken the conclusion. You can also discuss what sort of evidence would strengthen or refute the argument, what changes in the argument would make it more logically sound, and what, if anything, would help you better evaluate its conclusion.
The argument from the loan department of Frostbite National Bank is correct in stating that Frostbite would likely not experience a large spike in profits from a new ice cream parlor, given that the town is already oversaturated with ice cream options. When Frostbite National Bank makes a loan, they expect it to have a positive impact on the business. However, they fail to take into account that more ice cream parlors will not result in more business for the Frostbite Frigid Cow. In fact, the opposite is true. More businesses competing for the same customers will only drive the profits of the latter down. Frostbite National Bank assumes that the Frigid Cow will reap more profits than any of the other options. However, the Frostbite Frigid Cow is a business that is dependent on a local market, so an increase in competition may in fact lower profits. These local businesses not only compete for customers, but also for the same ingredients, such as milk and cream. The Frostbite Frigid Cow is priced relatively cheaply compared with other ice cream parlors, but its profit margins are slim. If a new competitor opens a store and offers lower prices, the Frigid Cow would lose customers to the cheaper product. Furthermore, if another competing store expanded their hours or included more flavors, the Frigid Cow would have to lower their prices or go out of business. Given the existing competition, Frostbite National Bank should not approve the loan to the Frigid Cow. They may have good intentions, but the Frostbite Frigid Cow will simply not be able to compete.