Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 13E
(a)
To determine
Entering the bid
(b)
To determine
Improvement of house and reselling.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Explain why a player in a sealed-bid, second-price auction would never submit a bid that exceeds his or her true value of the object being sold. (Hint: What if all players submitted bids greater than their valuations of the object?)
Use the expected value information to illustrate how having more bidders in an oral auction will likely result in a higher winning bid.
How to solve this question?
Consider an antique auction where bidders have independent private values. There are two bidders, each of whom perceives that valuations are uniformly distributed between $100 and $1,000. One of the bidders is Sue, who knows her own valuation is $200. What is Sue's optimal bidding strategy in a Dutch auction?
Chapter 13 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
Knowledge Booster
Similar questions
- Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300.a. In a standard “highest-bid” auction, what bid would a rational person make? The rational choice is to bid $500 since that is what the item is worth to you. The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid. The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit. The rational choice is to bid over $500 to guarantee that you win the item. b. In a Vickrey auction, what bid would he make? The rational choice is to bid slightly more than $500. The rational choice is to bid $500. The rational choice is to bid slightly less than $500. The rational choice is to bid slightly more than $300.arrow_forwardConsider a first-price, sealed-bid auction, and suppose there are only three feasible bids: A bidder can bid 1, 2, or 3. The payoff to a losing bidder is zero. The payoff to a winning bidder equals his valuation minus the price paid (which, by the rules of the auction, is his bid). What is private information to a bidder is how much the item is worth to him; hence, a bidder’s type is his valuation. Assume that there are only two valuations, which we’ll denote L and H, where H > 3 > L > 2. Assume also that each bidder has probability .75 of having a high valuation, H. The Bayesian game is then structured as follows: First, Nature chooses the two bidders’ valuations. Second, each bidder learns his valuation, but does not learn the valuation of the other bidder. Third, the two bidders simultaneously submit bids. A strategy for a bidder is a pair of actions: what to bid when he has a high valuation and what to bid when he has a low valuation. a. Derive the conditions on H and L…arrow_forwardTwo parties, Juan and Ben, have been negotiating the purchase by Ben of Juan's car. Juan receives a new and higher bid for his car from Adriana. How might Adriana's bid change Juan and Ben's threat values? The threat values are unchanged. Juan now values the car at the price of Adriana's bid, her bid is his opportunity cost of selling the car to Ben, and that opportunity cost is Juan's new threat value. Juan's new threat value is the product of the difference between Ben and Adriana's offers and the probability the car will be sold to Adriana. Juan's threat value is unchanged, but Ben has to consider his new opportunity costarrow_forward
- Consider the following game 1\2 Y Z A 10,3 3,9 B 8,5 6,1 Suppose Player 2 holds the following belief about Player 1: θ1 (A,B) = (9/10,1/10) What is the expected payoff from playing ‘Y’ ? What is the expected payoff from playing ‘Z’ ? Based on these beliefs, player 2 should respond by playing _____arrow_forwardConsider a game where there is a $2,520 prize if a player correctly guesses the outcome of a fair 7-sided die roll.Cindy will only play this game if there is a nonnegative expected value, even with the risk of losing the payment amount.What is the most Cindy would be willing to pay?arrow_forwardHello, please help me to solve this question in Game Theory. Thanks in advance!Consider a first price sealed-bid auction of an object with two bidders. Each bidder i’s valuation of the object is vi, which is known to both bidders. The auction rules are that each player submits a bid in a sealed envelope. The envelopes are then opened, and the bidder who has submitted the highest bid gets the object and pays the auctioneer the amount of his bid. If the bidders submit the same bid, each gets the object with probability 0.5. Bids must be integers. Find a Nash equilibrium for this game and show whether it is unique.arrow_forward
- Consider a Common Value auction with two bidders who both receive a signal X that is uniformly distributed between 0 and 1. The (common) value V of the good the players are bidding for is the average of the two signals, i.e. V = (X1+X2)/2. the symmetric Nash equilibrium bidding strategy for the second-price sealed-bid auction assuming that players are risk-neutral and have standard selfish preferences. Furthermore, you may assume that the other bidder is following a linear bidding strategy. Make sure to explain your notation and the steps you take to derive the result.arrow_forwardYour company is competing in a sealed-bid auction for a package of items your company values at $30,000. You expect the bids to be uniformly distributed between $20,000 and $30,000. a. Fill in the following table Bid Profit P(Win)Competitors = 2 E(Profit)Competitors = 2 P(Win)Competitors = 3 E(Profit)Competitors = 3 $20,000 $22,000 $24,000 $26,000 $28,000 $30,000 b. If there are two competitors, what is the optimal bid? c. If there are three competitors, what is the optimal bid?arrow_forwardPJ has been owning a City Golf, model 2004 for the past 15 years and now plans to sell it. Town auctioneers has offered to sell his car at their next auction. This is the first time PJ is hearing at an auction. PJ has approached you to explain to him what auction means and asked you if he should sell his car on auction or not. Briefly explain to PJarrow_forward
- Suppose two bidders compete for a single indivisible item (e.g., a used car, a piece of art, etc.). We assume that bidder 1 values the item at $v1, and bidder 2 values the item at $v2. We assume that v1 > v2. In this problem we study a second price auction, which proceeds as follows. Each player i = 1, 2 simultaneously chooses a bid bi ≥ 0. The higher of the two bidders wins, and pays the second highest bid (in this case, the other player’s bid). In case of a tie, suppose the item goes to bidder 1. If a bidder does not win, their payoff is zero; if the bidder wins, their payoff is their value minus the second highest bid. a) Now suppose that player 1 bids b1 = v2 and player 2 bids b2 = v1, i.e., they both bid the value of the other player. (Note that in this case, player 2 is bidding above their value!) Show that this is a pure NE of the second price auction. (Note that in this pure NE the player with the lower value wins, while in the weak dominant strategy equilibrium where both…arrow_forwardConsider a Common Value auction with two bidders who both receive a signal X that is uniformly distributed between 0 and 1. The (common) value V of the good the players are bidding for is the average of the two signals, i.e. V = (X1+X2)/2. Compute the symmetric Nash equilibrium bidding strategy for the second-price sealed-bid auction assuming that players are risk-neutral and have standard selfish preferences. Furthermore, you may assume that the other bidder is following a linear bidding strategy. Make sure to explain your notation and the steps you take to derive the result.arrow_forwardA strategy is a decision rule that describes the actions a player will take at each decision point. The normal-form game indicates the players in the game, the possible strategies of the players, and the payoffs to the players that will result from alternative strategies. In the game presented in Table Normal-Form Game, does player B have a dominant strategy? What is the secure strategy for player B in the game presented in Table Normal-Form Game?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning