Unformatted text preview: to fall anywhere between 0 and $ 250. Given this, if you submit a bid of Q, the probability that you win the auction is the probability that your bid Q will exceed your rival’s bid. It turns out that this probability is equal to Q 250 . (Don’t worry about where this formula comes from, but you probably should plug in several diﬀerent values of Q to convince yourself that this makes sense.) Your proﬁt from winning the auction is proﬁt = (200-bid ) · probability of winning . Show that your proﬁt-maximizing strategy is bidding half of your valuation. 1...
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- Spring '08
- Auction, University of California, first-price sealed-bid auction, Braeutigam, Aniko Oery