Microeconomics Plus Mylab Economics With Pearson Etext -- Access Card Package (2nd Edition) (the Pearson Series In Finance)
2nd Edition
ISBN: 9780134641454
Author: Acemoglu
Publisher: PEARSON
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Question
Chapter 17, Problem 6P
(a)
To determine
A situation in which the bidder would regret bidding
(b)
To determine
Situation in which the bidder would regret “under-bidding” of
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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…
Imagine that two firms in two different countries want to bring a new product tomarket. Due to economies of scale, if both firms do this, they will both lose £50million. But if only one firm does this, it will gain £300 million.(a) What is the best strategy for firm A, if firm B has not yet entered the market, andwhy?(b) Illustrate this with a game theory diagram, showing appropriate payouts.(c) What is the welfare-maximising strategy for a government, and why?
In 3 short paragraphs describe what advances in auction processes captured the Nobel Prize in econmics in 2020.
Chapter 17 Solutions
Microeconomics Plus Mylab Economics With Pearson Etext -- Access Card Package (2nd Edition) (the Pearson Series In Finance)
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