Question
There are two bidders who have independent private values, v1 and v2. For Bidder 1, his value can be either $20 or $50, each with
There are two bidders who have independent private values, v1 and v2. For Bidder 1, his value can be either $20 or $50, each with probability of 1/2. For Bidder 2, her value can be either $38 or $68, each with probability of 1/2. These value distributions are common knowledge. Standard rules of the second-price auction apply. There is no reserve price in this auction.For each bidder, calculate its expected payoff (before the bidder learns its value) in this auction.For the rest of the question, suppose that each bidder has to pay $5 to an intermediary to submit the bid in this auction (i.e., a cost of participation). If a bidder decides to participate, a bidder has to pay $5 before learning the realization of its own value. A bidder is free to not participate in the auction and avoid spending $5.(b) (c)Q3(5 points) Calculate the auctioneer’s expected revenue in this auction. (Hint: You need your answers for part (a) here)(5 points) Now suppose that the auctioneer can choose to subsidize the cost of interme- diary by reimbursing $5 to each bidder who submitted a bid. Calculate the auctioneer’s expected revenue in this auction (accounting for the cost of reimbursement) and argue whether or not the auctioneer should implement this subsidy.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started