View the step-by-step solution to:

Question

Game Theory

 

2. A stamp collector is considering selling one of her prize

stamps. Based on some very insightful market research, she knows that there are two bidders, and each bidder just wants to add the stamp to their own private collection and is not worried about resale value. Depending on their mood the day of the auction, each bidder is equally likely to value the stamp at $10, $20 or $30. (The realized values are not correlated across the two bidders, i.e. they are independent, private values. Also assume everyone, including the seller, is risk neutral, and if there is a tie, we can flip a coin to determine the winner.)

 

a. If the stamp collector values the stamp at $11, what is her expected profit from using a sealed-bid second-price auction?

 

b. Suppose the stamp collector decided to run a first-price sealed-bid auction, rather than a second-price sealed-bid auction. Why might the bidders be more comfortable with a first-price auction, especially if they can't verify the seller is honest?

  

Top Answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online