Jan 27, 2011 - January 27, 2011 - Lecture 7 First Price...

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} True Valuations $6,500 $0 $4,500 $5,000 Betsy ʼ s T.V. Adam ʼ s T.V. First Price Sealed BId Auction : (FPSBA; this abbreviation is used by the prof alone, it is not common) Different because here the highest bidder pays the the amount they bid, not the second highest bid. Back to Adam and Betsy: Adam ʼ s T.V. ---> $5,000 Betsy ʼ s T.V. ---> $6,500 Consider: ($4.500; $5,500) This is not a Nash Equilibrium because it ʼ s not the best response that Adam can give to Betsy and vice versa Even if Betsy chooses to bid $4,500+ , the strategy ($4,500; $4.500+) is not a Nash Equilibrium because Adam can still bid higher and be well under his true valuation, making $4,500+ far from being Betsy ʼ s best response. Anything between $5,000 and $6,500 for both players is a Nash Equilibrium. However, the best of all the Nash Equilibria is ($5,000; $5,000+), because here if Adam happens to win the auction, he won ʼ t get a negative payoff, and Betsy is still making a pro±t. So they ʼ re both giving their best responses, and won ʼ t deviate. Another common factor is the Revenue Neutrality. This is when one player bids the same amount
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This document was uploaded on 04/07/2011.

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Jan 27, 2011 - January 27, 2011 - Lecture 7 First Price...

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