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Q4. An auctioneer is planning to sell Andy Warhol's painting through an auction. There are 5 bidders with values distributed uniformly between $0 and
Q4. An auctioneer is planning to sell Andy Warhol's painting through an auction. There are 5 bidders with values distributed uniformly between $0 and $50 million. (a) Suppose that the auctioneer holds a second-price sealed bid auction with no reserve price. What is the expected revenue? (Hint: Note that U[0, 50 mil.] = 50 mil. U[0, 1]. It should be straight- forward to apply a result on a lecture slide) The auctioneer proposes to hold an all-pay auction to try to get as much money as possible. In an all-pay auction, each bidder places a bid, the bidder with the highest bid wins the object, but all bidders pay their bids. (b) (1 point) In an all-pay auction what should a bidder with the lowest possible value ($0) bid? Explain. (c) In equilibrium bids in an all-pay auction are a strictly increasing function of a bidder's value. Explain why this fact, and your answer to (b), imply that the expected revenue is the same in the two auction formats. (an all-pay auction and a second-price auction)
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