Suppose the buyer of knows that he can improve the value of the existing company by 50%. The seller knows the exact value of the company, but the buyer does not. The buyers best assessment is that the current value, v, is equally likely to be any number between 0 and 100. That is, v, is uniformly distributed on (0,100). We say that v is the sellers type, which is private information to the seller.

If the seller of type v accepts an offer of price p to sell the company, then the buyer receives a payoff of 1.5*v p, while the seller receives a payoff of p. If the seller rejects the offer, the buyer receives a payoff of 0 and the seller retains the company at its current value for a payoff of v. Both parties are assumed to be risk-neutral.

a. What is the expected profit to the buyer if he offers p = 100 to the seller? Can p = 100 be an equilibrium price?

b. So that in equilibrium, there is no trade.

c. What happens when the buyer can triple the value of the company (instead of 1.5)?