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Q1 Reserve Price in the Second-Price Auction In this problem we will ask how much a seller can expect to receive for his object in
Q1 Reserve Price in the Second-Price Auction In this problem we will ask how much a seller can expect to receive for his object in a second price, sealedbid auction. Assume that there are two bidders who have independent, private values vi which are either 1 or 2. For each bidder, the probabilities of n; = 1 and a; = 2 are each 1/2. Assume that if there is a tie at a bid of a: for the highest bid the winner is selected at random from among the highest bidders and the price is I. We also assume that the value of the object to the seller is I]. (a) Show that the seller's expected revenue is 5/4. (b) Now let's suppose that the seller sets a reserve price of R with 1
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