FCC AuctionThe 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 itsvaluation v;; but 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;1If bidder i wins only object j at price p;, his payoff is vij – P;. 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no longer get back to the bidding for thatobject, but he can stay in the bidding race for the other object if he hasn't withdrawn fromit previously.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 arePi + Vi2 –P2.'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.1. What should a bidder do if his valuations for the two objects are 50 and 60, respectively?Explain your answer.2. An efficient allocation is an auction outcome in which each object is given to thebidder who values the object the most. Does the auction lead to an efficient allocation?Explain your answer.3. Some people advocated the following modification of the auction rule. A bidder cannotbid for only one object, i.e., if at some point in time he withdraws from the biddingrace for one object, he automatically withdraws the race for the other object. Everyother aspect of the auction, including how prices increase over time, does not change.(a) What should a bidder do if his valuations for the two objects are 50 and 60,respectively? Explain your answer.(b) Does the auction lead to an efficient allocation? Explain your answer.

Auctions play a crucial role in allocating resources efficiently and generating substantial revenue…

The Federal Communications Commission (FCC) organizes multiple auctions of airwave licenses each year that generate billions of dollars in revenue. The following is a simplified version of an FCC auction. Consider three bidders bidding for two objects (for example, an object could be a license that covers Manhattan, and a bidder can be Comcast).¹ Let vij be bidder i's valuation for object j, where i € {1,2,3} and j € {1,2}. Bidder i knows its valuation vij but other bidders only know that vij is drawn uniformly from [0, 100]. If bidder i wins object 1 at price p₁ and object 2 at price p2, bidder i's payoff is vi P₁ + V₁2 - P2. If bidder i wins only object j at price p,, his payoff is vij - Pj. If bidder i does not win any object, his payoff is 0. The auction proceeds as follows. The initial prices are zero for both objects. All bidders sit -

The Federal Communications Commission (FCC) organizes multiple auctions of airwave licenses each year that generate billions of dollars in revenue. The following is a simplified version of an FCC auction. Consider three bidders bidding for two objects (for example, an object could be a license that covers Manhattan, and a bidder can be Comcast).¹ Let vij be bidder i's valuation for object j, where i € {1,2,3} and j € {1,2}. Bidder i knows its valuation vij but other bidders only know that vij is drawn uniformly from [0, 100]. If bidder i wins object 1 at price p₁ and object 2 at price p2, bidder i's payoff is vi P₁ + V₁2 - P2. If bidder i wins only object j at price p,, his payoff is vij - Pj. If bidder i does not win any object, his payoff is 0. The auction proceeds as follows. The initial prices are zero for both objects. All bidders sit -

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter5: Bond, Bond Valuation, And Interest Rates

Section: Chapter Questions

Problem 1kM

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Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby.The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…
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Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…
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Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm's brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…
Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…