in this question we will consider an auction in which there is one seller who wa
ID: 1139768 • Letter: I
Question
in this question we will consider an auction in which there is one seller who wants to sell one unit of a good and a group of bidders who are each interested in purchasing the good. The seller will run a sealed-bid, second-price auction. Your firm will bid in the auction, but it does not know for sure how many other bidders will participate in the auction. There will be either two or three other bidders in addition to your firm. All bidders have independent, private values for the good. Your firm’s value for the good is c. What bid should your firm submit, and how does it depend on the number of other bidders who show up? Give a brief (1-3 sentence) explanation for your answer.
Explanation / Answer
At Chegg we try to help student and solve your queries. Do give a thumbs up for the answer and the efforts put in.
Answer-
We understand that-
Therefore based on the condition above the firm should submit a bid that maximizes the utility function of the firm and also is able to restrain the cost curve to the lowest portion. The firm can develop a cost optimizing utility curve based on the price evaluation and then can quote and optimal price.
The price being quoted by the firm will be affected by the number of other bidders in the market as this is a auction and based on second best bidder the product will be sold, hence if the number of bidders increases then the bids will also increase and the price will be escalated to a point where the utility for other bidders may increase without affecting the cost curve hence allowing them to quote a lower price.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.