1. Individual Problems 18-1You hold an oral, or English, auction among three bidders. You estimate that each bidder has a value of either $88 or $110 for the item, and you attach probabilities to each value of 50%. The winning bidder must pay a price equal to the second highest bid.The following table lists the eight possible combinations for bidder values. Each combination is equally likely to occur.On the following table, indicate the price paid by the winning bidder.Combination NumberBidder 1 ValueBidder 2 ValueBidder 3 ValueProbabilityPrice($)($)($)1$88$88$880.125 2$88$88$1100.125 3$88$110$880.125 4$88$110$1100.125 5$110$88$880.125 6$110$88$1100.125 7$110$110$880.125 8$110$110$1100.125 The expected price paid is . Suppose that bidders 1 and 2 collude and would be willing to bid up to a maximum of their values, but the two bidders would not be willing to bid against each other. The probabilities of the combinations of bidders are still all equal to 0.125. Continue to assume that the winning bidder must pay a price equal to the second highest bid.On the following table, indicate the price paid by the winning bidder.Combination NumberMaximum of Bidder 1 and 2Bidder 3 ValueProbabilityPrice($)($)1$88$880.125 2$88$1100.125 3$110$880.125 4$110$1100.125 5$110$880.125 6$110$1100.125 7$110$880.125 8$110$1100.125 With collusion, the expected price paid is .

The expected price in an auction is difficult to determine precisely as it depends on various…

Answered: You hold an oral, or English, auction…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.5IP

See similar textbooks

1. Individual Problems 18-1

You hold an oral, or English, auction among three bidders. You estimate that each bidder has a value of either $88 or $110 for the item, and you attach probabilities to each value of 50%. The winning bidder must pay a price equal to the second highest bid.

The following table lists the eight possible combinations for bidder values. Each combination is equally likely to occur.

On the following table, indicate the price paid by the winning bidder.

Combination Number	Bidder 1 Value	Bidder 2 Value	Bidder 3 Value	Probability
($)	($)	($)
1	$88	$88	$88	0.125
2	$88	$88	$110	0.125
3	$88	$110	$88	0.125
4	$88	$110	$110	0.125
5	$110	$88	$88	0.125
6	$110	$88	$110	0.125
7	$110	$110	$88	0.125
8	$110	$110	$110	0.125

The expected price paid is

Suppose that bidders 1 and 2 collude and would be willing to bid up to a maximum of their values, but the two bidders would not be willing to bid against each other. The probabilities of the combinations of bidders are still all equal to 0.125. Continue to assume that the winning bidder must pay a price equal to the second highest bid.

On the following table, indicate the price paid by the winning bidder.

Combination Number	Maximum of Bidder 1 and 2	Bidder 3 Value	Probability
($)	($)
1	$88	$88	0.125
2	$88	$110	0.125
3	$110	$88	0.125
4	$110	$110	0.125
5	$110	$88	0.125
6	$110	$110	0.125
7	$110	$88	0.125
8	$110	$110	0.125

With collusion, the expected price paid is

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.