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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 rivals bid. It turns out that this probability is equal to Q 250 . (Dont worry about where this formula comes from, but you probably should plug in several dierent values of Q to convince yourself that this makes sense.) Your prot from winning the auction is prot = (200-bid ) probability of winning . Show that your prot-maximizing strategy is bidding half of your valuation. 1...
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This note was uploaded on 01/19/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.
- Spring '08