Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold

A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. Suppose that an auctioneer faces two bidders in an oral auction, each with a value of either $30 or $70, with both values equally probable.Assume the bidders know the reserve price when bidding. Calculate the expected revenue from auctioning the item with and without a reserve price, and identify the optimal reserve-pricing strategy.

Now suppose that the auctioneer has decided to run a sealed-bid second-price "Vickrey" auction and there are two types of bidders with values of either $55 or $70.Calculate the expected revenue from auctioning the item with and without a reserve, assuming the auctioneer chooses the optimal reserve level.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Development Economics In The Twenty-First Century

Authors: Claudia Sunna, Davide Gualerzi

1st Edition

1317219961, 9781317219965

More Books

Students also viewed these Economics questions