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Consider the auction of a single indivisible object to two risk neutral bidders, each of whom receives a private signal Xi (i {1, 2}) which
Consider the auction of a single indivisible object to two risk neutral bidders, each of whom receives a private signal Xi (i {1, 2}) which is independently and uniformly distributed on the interval [1, 3]. Suppose bidders have a common value V where V = X1 + X2 . 1. Illustrate the Winner's curse in the context of this example and second price auctions. In particular, if all bidders bid "naively" are there values of a bidder's signal for which a bidder experiences "expected" losses? 2. Let the bidding function b I I (x ) = x define a symmetric equilibrium of the second price auction. Derive the value of . To help you out, you are advised to structure your answer in accordance with the following format
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