Lecture%2025%20-%20Oligopoly%20and%20Market%20Structure

Lecture%2025%20-%20Oligopoly%20and%20Market%20Structure -...

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    1 FIN 501 Financial Economics Lecture 25:  Oligopoly and Market  Structure Professor Nolan Miller
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    2 Announcements Problem Set #7 is due Today The Final Exam will be Wednesday, December 15, from 1:30 – 4:30. If you have a conflict with the final exam, contact me as soon as  possible. Today’s Lecture: First, common values auctions, briefly. Then, market structure and oligopoly.
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    3 After today … The next two/three lectures are on macroeconomics. May cover more on oligopoly on Thurs, start Macro in second half. Designed to be self-contained, very general overview. “Cocktail Party” macro. Exam questions, if any, will focus on  very  basic definitions. References: Brief Principles of Macroeconomics , N. Gregory Mankiw. Macroeconomics Both on reserve. I don’t think it is a good use of money to buy one of these (very $$$), but some  people like to have additional references.
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    4 The Winners Curse In a second price auction with private values, it is a dominant strategy to  bid your true value. This is not the case in a common values auction. With common values, there is once again a good reason to shade your  bid downward. This is called the “winner’s curse.”
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    5 Guess how many pennies auction The “guess the pennies” auction is a common values auction. The jar is worth the same amount to everyone. Everyone has a guess about how much money is in the jar. If you knew other people’s opinions, that might lead you to refine your  guess. “Wisdom of crowds”
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    6 Guess how much money I gave you no information about how much money was in the jar. Guesses ranged from $4.72 to $88. The average guess was $23.88. Really there was … $15.17. About 41% of guesses were greater than 23.  61% of guesses were higher than  $15.17. So, the average was often more accurate than individuals. And, presumably if I told you the average, you would lower your guess if you were  above 21.
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  7 The Winner’s Curse When do you win this auction? Suppose everyone uses a formula to translate their estimate into a  bid. Bid = f(estimate). If higher estimates lead to higher bids, then the one who wins the  auction will be the one with the HIGHEST estimate of how much  money is in the jar. But, this means that everyone else had a lower estimate than you 
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Lecture%2025%20-%20Oligopoly%20and%20Market%20Structure -...

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