Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 15A, Problem 1E
To determine
To Explain: The auction design features that reduce the winner’s curse and thus reduces the strategic underbidding.
Expert Solution & Answer
Answer to Problem 1E
The features that reduce the winner’s curse have been explained.
Explanation of Solution
In an auction the winner would be the one who submits the highest bid and the winner’s curse happens when the bidder overestimates the asset and overpay for it. While bidding, if the winner’s curse is also considered and factored in, then the actual overpayment would not occur generally.
In order to avoid the winner’s curse the following guide lines may be followed:-
- It needs to be analyzed as to whether the asset has a common value element.
- A comparison of capabilities should be done between the bidders.
- While placing each bid, the consequences after winning the bid, should be analyzed by the bidder.
Economics Concept Introduction
Introduction: When the winning bid in an auction is more than the true worth of the item, then this tendency is called the winner’s curse.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Explain how the strategic choice of reservation price can raise expected profitability yet threaten efficiency in an English auction.
a Firm A and Firm B decide to launch their new products in the market. Each firm can choose to either sell the product at a high price (H) or a low price (L). The estimated payoff table is as follows:
Firm B
L
H
Firm A
L
(250, 150)
(280, 130)
H
(140, 180)
(270, 190)
(Firm A's payoff is given before the comma, and Firm B's payoff is given after the comma.)
i What are the dominant strategies (if any) for Firm A and Firm B respectively?
ii What is the Nash equilibrium outcome, if any? Explain. (
iii If Firm A can decide on what strategy to use first, what will be the Nash equilibrium (if any) of this sequential game? Explain with the aid of a tree diagram.
b Explain why the market of health insurance is less efficient with the presence of asymmetric information. (Assume the insured knows more about his/her health condition than the insurance provider.)
Hello, please help me to solve this question in Game Theory. Thanks in advance!Consider a first price sealed-bid auction of an object with two bidders. Each bidder i’s valuation of the object is vi, which is known to both bidders. The auction rules are that each player submits a bid in a sealed envelope. The envelopes are then opened, and the bidder who has submitted the highest bid gets the object and pays the auctioneer the amount of his bid. If the bidders submit the same bid, each gets the object with probability 0.5. Bids must be integers.
Find a Nash equilibrium for this game and show whether it is unique.
Chapter 15A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Knowledge Booster
Similar questions
- What is Revenue Equivalence Theorem for the standard auction types?arrow_forwardExplain how an auction to sell a consumer-facing banking division might be used to determine the value of the division.arrow_forwardConsider the following situation: five individuals are participating in an auction for an old bicycle used by a famous cyclist. The table below provides the bidders' valuations of the cycle. The auctioneer starts the bid at an offer price far above the bidders' values and lowers the price in increments until one of the bidders accepts the offer. Bidder Value ($) Roberto 750 Claudia 700 Mario 650 Bradley 600 Michelle 550 What is the optimal strategy of each player in this case? Who will win the auction if each bidder places his or her optimal bid? If Claudia wins the auction, how much surplus will she earn?arrow_forward
- Which of the following concepts of equilibrium in game theory always exists under the assumption of expected utility maximization? (A) dominant strategy equilibrium; (B) iterated dominance equilibrium ; (C) Nash equilibrium in mixed strategies; (D) Nash equilibrium in pure strategies.arrow_forwardProblems associated towards unique outcomes in games where multiple Nash equilibria exist”arrow_forwardAnalyze the pure Nash equilibrium and mixed Nash equilibrium strategies in the following manufacturer–distributor coordination game. How would you recommend restructuring the game to secure higher expected profit for the manufacturer?arrow_forward
- A cool kid is willing to rename himself for a profit. He decides to auctionoff the naming right. Two bidders show interest. Their valuations for thenaming right are independently and uniformly distributed over [0,100].There are several possible ideas to design the auction. The auction runs as follows. Both bidders are invited to the same room; an auctioneer will start the auction with an initial price 0, and increase it by $1 every minute. The bidders are not allowed to say anything during the process, but they can walk out of the room at any moment. If one bidder walks out of the room when the price increases to p (the bidder does not need to pay), the remaining bidder will be awarded the naming right for a price of p. If both walk out when the price reaches p, the naming right is not assigned andthe two bidders do not need to pay. What should the bidders do? Explain your answer.arrow_forwardIf the price match policy is a good idea, how widely should it be advertised? Explain. You woke up this morning to a troubling advertisement on TV: A+ Rental Cars' local competitor is discounting their economy rentals. After doing a little digging, you discover that your competitor has launched an aggressive advertising campaign, reducing the price on their economy line from $32.99 to $24.99. Based on your knowledge of previous pricing practices, you expect a similar price reduction across all vehicle types.arrow_forwardDiscrete All-Pay Auction: In Section 6.1.4 we introduced a version of an all- pay auction that worked as follows: Each bidder submits a bid. The highest bidder gets the good, but all bidders pay their bids. Consider an auction in which player 1 values the item at 3 while player 2 values the item at 5. Each player can bid either 0, 1, or 2. If player i bids more than player j then i wins the good and both pay. If both players bid the same amount then a coin is tossed to determine who gets the good, but again both pay. a. Write down the game in matrix form. Which strategies survive IESDS? b. Find the Nash equilibria for this game.arrow_forward
- Find the Subgame Perfect Nash Equilibrium of this game using backward induction. Please write down the calculations to show why a player prefers one action over another. (N represents nature)arrow_forwardList five types of infinitely repeated gamesarrow_forwardDetermine all of the Nash equilibria (pure-strategy and mixed-strategy equilibria) of the following game:arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning