auction, economics assignment help

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Intermediate Microeconomics, Homework 9 1. Alice and Bob are bidding to take over a promising internet startup company owned by Claire. The company has the same value v to both Alice and Bob, but Alice doesn’t know v. Bob is more informed and has a very accurate estimate of v that we will assume to be exact. From Alice’s point of view, v is uniformly distributed between $0 and $10 million. Claire will run a second-price auction with a reserve price of $4 million. Assume that Bob bids the true value v. (a) If Alice submits a bid b ∈ ($4m, $10m), how likely (in terms of b) is she to buy the company? (b) What is her average profit? (c) What is Alice’s best strategy? Why? 2. Alice is selling two identical watches by auction. There are three bidders, Bob, Charlie and Daphne, and each will buy at most one watch. Bidders’ values are independent and private. Bidders always have the option not to participate, which is the same thing as bidding $0. Bob’s value for the watch is $400. He doesn’t know what the other bidders will do, but his best guess is that Charlie’s bid will be uniformly distributed on the interval [0,500] and Daphne’s on the interval [500,1000]. (a) Suppose Alice runs a first-price auction: All three bidders submit bids simultaneously, and the top two bidders each pay the highest bid and receive a watch. What would you advise Bob to bid? Why? (b) Suppose Alice runs a second-price auction: All three bidders submit bids simultaneously, and the top two bidders each pay the second-highest bid and receive a watch. What would you advise Bob to bid? Why? (c) Suppose Alice runs a third-price auction: All three bidders submit bids simultaneously, and the top two bidders each pay the thirdhighest bid and receive a watch. What would you advise Bob to bid? Why? 1

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Sabrina0000
School: UT Austin

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Intermediate Microeconomics, Homework 9
1. Alice and Bob are bidding to take over a promising internet startup company owned by
Claire. The company has the same value v to both Alice and Bob, ...

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Anonymous
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