A and H want to improve the technology they have developed. There is a firm that has built a set of applications based on the open-source technology A and H have and want to sell the rights to use the applications to only one buyer. They will sell the applications at auction and 13 participants have registered for the auction, including A and H together as a single bidder. You don't have information about how much the other 12 participants value the applications, but you know that the valuations are uniformly and independently distributed, you also know A and H value the applications in 19, and that the closest valuation to theirs is approximately equal to 18. The sellers have asked the registered participants to vote on which type of auction they want to participate in, either a sealed-bid first-price auction or a sealed-bid second-price auction. The auction that received the most votes is the auction that the seller will run. All participants have voted except for A and H. The votes are public, and so far 6 participants have voted for the sealed-bid first-price auction and the other 6 participants for the sealed-bid second-price auction. Therefore, A and H have the decisive vote and you have to decide for which auction format to vote and convince the owners of A and H to vote for that format based on what you have learnt and the information you have.

1. Given the information you have, evaluate what auction format, a Sealed Bid First Price Auction or a Sealed Bid Second Price Auction, is the more appropriate in this case according to the theoretical results we studied. Support your answers with adequate economic intuition, theoretical results and concepts, and the corresponding calculations

(15 marks)

1. The owners of A and H have asked you what happens when the number of bidders increases in a sealed-bid first-price auction. Explain how the numbers of bidders change the outcome in a sealed-bid first price auction. Support your answers with adequate economic intuition, theoretical results and concepts, and indicate the mechanism behind the change in the outcome.

(10 marks)