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Unformatted text preview: Economics 310-2 Spring 2009 Professor Jeff Ely Problem Set 3 Due Monday April 20 1. Consider a first-price auction with a reserve price equal to r A reserve price of r means that the high bidder wins only if his bid exceeds r . If all bidders bid below r , then there is no sale. Is bidding less than r a dominated strategy in the first-price auction with reserve price r . Explain carefully why? 2. In a third-price sealed-bid auction, the winner is the highest bidder and the winner pays the third-highest submitted bid (and losers pay nothing.) Is it a dominant strategy to bid your true willingness-to-pay in a third-price auction? 3. We are allocating space on the first civilian flight to the Moon. There are only n seats available and m > n people who would be interested in going. The seats will be allocated by sealed-bid auction in which the n highest bidders will win. Come up with a rule for determining the price that the winners will pay so that bidding ones true value will be a dominant strategy.true value will be a dominant strategy....
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