Economic and Game Theory
|"Inside every small problem is a large problem struggling to get out."|
Thread and Full Text View
Consider the following second-price sealed-bid private value auction with two bidders, n=2. Each bidder's private value is uniformly distributed over [0,2], and the distribution of the private value is denoted by F(.). The valuation of each bidder i, i=A or B, is denoted by v_i. A bidder does not know any other bidder's private value. If a bidder with value v_i chooses to enter the auction, an entry cost c =0.02 should be incurred.
a) Argue that conditional on entering the auction, a bidder cannot do better than bidding his/her true value
b) Given that all bidders play the bidding strategy characterized in (a), please characterize the symmetric equilibrium entry strategy for the two bidders. Now suppose that the cost of entry increases. Discuss how bidders’ entry and bidding decisions would change [Manage messages]