See attachments for question context.Question: Some people advocated the following modifiction of the auction rule. A bidder cannot bid for only one object, i.e., if at some point in time he withdraws from the bidding race for one object, he automatically withdraws the race for the other object. Every other aspect of the auction, including how prices increase over time, does not change.What should a bidder do if his valuation for the two objects are 50 and 60, respectively? Explain. Does the auction lead to an efficient allocation? Explain. The Federal Communications Commission (FCC) organizes multiple auctions of airwavelicenses each year that generate billions of dollars in revenue. The following is a simplifiedversion of an FCC auction. Consider three bidders bidding for two objects (for example, anobject could be a license that covers Manhattan, and a bidder can be Comcast). Let vijbe bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows itsvaluationVijbut other bidders only know that vij is drawn uniformly from [0, 100]. If bidderi wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win anyobject, his payoff is 0.The auction proceeds as follows. The initial prices are zero for both objects. All bidders sitin front of their computers and observe the prices for both items in real time. Initially allbidders are invited to enter the bidding race for both items. At any moment in time, eachbidder has the option to withdraw from the bidding race for either object or both. If a bidderwithdraws from the bidding for one object, he can no longer get back to the bidding for thatobject, but he can stay in the bidding race for the other object if he hasn't withdrawn fromit previously. The price for an object increase continuously over time as long as there are'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwavelicenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auctiondesigns have been adopted by many other countries in the world, and the auctions rules have been updatedfrom time to time. Microeconomic theorists are involved in both auction designs and actual bidding. two or three bidders in the race for that object. The rate of price increase is 1; that is tosay, the price increases to x if x units of time has passed, where x is a real number. Theprice for an object stops increasing if there is at most one bidder left for the bidding race forthe object, and the price will stay at that level for the rest of the game; we say the price islocked in this case. (the price for the other object will continue to increase if more than onebidder stays in the bidding race for that object). The auction ends as soon as both pricesstop increasing (i.e., at most one bidder remains in the bidding race for each object). Anobject is sold to the bidder (if any) who remains in the bidding race for that object at thelocked price.

Question

See attachments for question context.Question: Some people advocated the following modifiction of the auction rule. A bidder cannot bid for only one object, i.e., if at some point in time he withdraws from the bidding race for one object, he automatically withdraws the race for the other object. Every other aspect of the auction, including how prices increase over time, does not change.What should a bidder do if his valuation for the two objects are 50 and 60, respectively? Explain. Does the auction lead to an efficient allocation? Explain. The Federal Communications Commission (FCC) organizes multiple auctions of airwavelicenses each year that generate billions of dollars in revenue. The following is a simplifiedversion of an FCC auction. Consider three bidders bidding for two objects (for example, anobject could be a license that covers Manhattan, and a bidder can be Comcast). Let vijbe bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows itsvaluationVijbut other bidders only know that vij is drawn uniformly from [0, 100]. If bidderi wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win anyobject, his payoff is 0.The auction proceeds as follows. The initial prices are zero for both objects. All bidders sitin front of their computers and observe the prices for both items in real time. Initially allbidders are invited to enter the bidding race for both items. At any moment in time, eachbidder has the option to withdraw from the bidding race for either object or both. If a bidderwithdraws from the bidding for one object, he can no longer get back to the bidding for thatobject, but he can stay in the bidding race for the other object if he hasn't withdrawn fromit previously. The price for an object increase continuously over time as long as there are'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwavelicenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auctiondesigns have been adopted by many other countries in the world, and the auctions rules have been updatedfrom time to time. Microeconomic theorists are involved in both auction designs and actual bidding. two or three bidders in the race for that object. The rate of price increase is 1; that is tosay, the price increases to x if x units of time has passed, where x is a real number. Theprice for an object stops increasing if there is at most one bidder left for the bidding race forthe object, and the price will stay at that level for the rest of the game; we say the price islocked in this case. (the price for the other object will continue to increase if more than onebidder stays in the bidding race for that object). The auction ends as soon as both pricesstop increasing (i.e., at most one bidder remains in the bidding race for each object). Anobject is sold to the bidder (if any) who remains in the bidding race for that object at thelocked price.

Accepted Answer

Bidders, who are participants in auctions, engage in competitive bidding to acquire goods or…