ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Related questions
Question
See attached images for question context.
Please answer part (b)
Question: In real-world FCC auctions, there are other complications. We consider two of them below.
(a) Bidder 1 is financially constrained (while the two other bidders are not). Suppose bidder 1's valuations for the two objects are 50 and 60; respectively, but his total budget is 100. What should this bidder do in the auction (according to the auction rule for Question 1 - question 1: What should a bidder do if his valuations for the two objects are 50 and 60?); respectively? Explain.
(a) Bidder 1 is financially constrained (while the two other bidders are not). Suppose bidder 1's valuations for the two objects are 50 and 60; respectively, but his total budget is 100. What should this bidder do in the auction (according to the auction rule for Question 1 - question 1: What should a bidder do if his valuations for the two objects are 50 and 60?); respectively? Explain.
(b) Bidders do not have budget constraints. Bidder 1 is special. He values the two objects individually at 50 and 85; respectively. But this bidder's valuation for the bundle of the two objects is 140 (which is greater than the sum of 50 and 85). That is to say, if bidder 1 gets only object 1 and the price is 30, his net payoff will be 50 30 = 20; but if he gets both objects at prices 30 and 20, his net payoff will be 140 - 30 - 20 = 90. The greater valuation for the bundle may come from economies of scales, market power, etc. What should bidder 1 do in the auction (according to the auction rule for Question 1. Question 1: What should a bidder do if his valuations for the two objects are 50 and 60)? Explain.
![The Federal Communications Commission (FCC) organizes multiple auctions of airwave
licenses each year that generate billions of dollars in revenue. The following is a simplified
version of an FCC auction. Consider three bidders bidding for two objects (for example, an
object could be a license that covers Manhattan, and a bidder can be Comcast). Let vij
be bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows its
valuation
Vij
but other bidders only know that vij is drawn uniformly from [0, 100]. If bidder
i wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.
If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win any
object, his payoff is 0.
The auction proceeds as follows. The initial prices are zero for both objects. All bidders sit
in front of their computers and observe the prices for both items in real time. Initially all
bidders are invited to enter the bidding race for both items. At any moment in time, each
bidder has the option to withdraw from the bidding race for either object or both. If a bidder
withdraws from the bidding for one object, he can no longer get back to the bidding for that
object, but he can stay in the bidding race for the other object if he hasn't withdrawn from
it previously. The price for an object increase continuously over time as long as there are
'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwave
licenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auction
designs have been adopted by many other countries in the world, and the auctions rules have been updated
from time to time. Microeconomic theorists are involved in both auction designs and actual bidding.](https://content.bartleby.com/qna-images/question/a550ff16-be18-4c5b-b3ad-8a1f02d33310/d0976560-16dc-46d2-8ec0-a7dca05f4427/fz3nvo_processed.png)
Transcribed Image Text:The Federal Communications Commission (FCC) organizes multiple auctions of airwave
licenses each year that generate billions of dollars in revenue. The following is a simplified
version of an FCC auction. Consider three bidders bidding for two objects (for example, an
object could be a license that covers Manhattan, and a bidder can be Comcast). Let vij
be bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows its
valuation
Vij
but other bidders only know that vij is drawn uniformly from [0, 100]. If bidder
i wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.
If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win any
object, his payoff is 0.
The auction proceeds as follows. The initial prices are zero for both objects. All bidders sit
in front of their computers and observe the prices for both items in real time. Initially all
bidders are invited to enter the bidding race for both items. At any moment in time, each
bidder has the option to withdraw from the bidding race for either object or both. If a bidder
withdraws from the bidding for one object, he can no longer get back to the bidding for that
object, but he can stay in the bidding race for the other object if he hasn't withdrawn from
it previously. The price for an object increase continuously over time as long as there are
'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwave
licenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auction
designs have been adopted by many other countries in the world, and the auctions rules have been updated
from time to time. Microeconomic theorists are involved in both auction designs and actual bidding.
Transcribed Image Text:two or three bidders in the race for that object. The rate of price increase is 1; that is to
say, the price increases to x if x units of time has passed, where x is a real number. The
price for an object stops increasing if there is at most one bidder left for the bidding race for
the object, and the price will stay at that level for the rest of the game; we say the price is
locked in this case. (the price for the other object will continue to increase if more than one
bidder stays in the bidding race for that object). The auction ends as soon as both prices
stop increasing (i.e., at most one bidder remains in the bidding race for each object). An
object is sold to the bidder (if any) who remains in the bidding race for that object at the
locked price.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 3 steps with 16 images
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.Similar questions
- (a) Assuming that each fishery chooses fi ∈ (0, F), to maximize its payoff function, derive the players’ best response functions and find a Nash equilibrium. (b) Is the equilibrium you found in (a) unique or not? What are equilibrium payoffs? 4 (c) Suppose that a benevolent social planner wants maximize the utility of both fisheries. In other words, the social planner solves the following problem: max w(f1,f2) w(f1, f2) = u1(f1, f2) + u2(f1, f2) =2 ln(f1) + 2 ln(f2) + 2 ln(F − f1 − f2). Find the social planner’s solution. (d) What are the fisheries’ payoffs if the quantities of fish they catch are solutions to the social planner’s problem? What can you say about the Nash equilibrium quantities of fish being caught as compared to the social planner’s solution? (e) If fishery j decides to follow the recommendation of the social planner, how much fish will firm i catch?arrow_forwardSolve all this question compulsory......arrow_forward1. Consider a sequential continuum game with two players, in which Player 1 first chooses a continuous variable £₁, and then Player 2 selects £2, with payoff functions ₁ and 7₂. Find the best response for P2, as the function î2 = BR₂(x1), for each given #₂: (a) (b) (c) T₂(x1, x₂) ) = (1400 — x1 — x2)x2 − 13x² T₂(x1, x₂) T₂(X1, X2₂) = : 100x2 + 3x1x2 − 14x1 – 30x1x² = 15x2 x² + x² +1arrow_forward
- (The All-Pay Auction). The seller has an item for sale. The valuations of the bidders are independently and identically distributed on R+ with a c.d.f. F. Find the symmetric equilibrium of an auction with two bidders in which both bidders pay their own bids but only the highest bidder wins the object. Show that each bidder’s expected payment is the same in this auction and in the first-price auction.arrow_forwardConsider that there is one auctioneer who would like to sell one commodity and there are 2 individuals, 1 and 2. The auctioneer will apply the following tie-breaking rule: If there are multiple bidders who announce the highest bid, then select the bidder with the smallest index will be picked up as the winner. (For instance, let b(i) = b(j) . Then, i is the winner if and only if i < j.) Let each individual i's private value of the commodity, v(i), is given as: v(1) = $1600; v(2) = $2100. Considering a first-price auction, specify the set of Nash equilibria in this game.arrow_forwardWhy do sellers generally prefer a Vickrey auction to a regular sealed bid if sellers don’t receive the highest bid in the Vickrey auction? Sellers only have to sell their item if the bid is the highest-price bid. The second-highest bid in a Vickrey auction is generally higher than the highest bid in a regular sealed-bid auction. The second-highest bid is about the same in both auctions. Sellers prefer the final price is not revealed to all bidders. Sellers would never prefer Vickrey auctions.arrow_forward
- See attachmentsarrow_forwardQ1 Market-clearing Prices Consider a standard position auction. There are two positions: Top (T) and Bottom (B). Position T receives rr = 150 clicks per day and position B receives rg = 50 clicks per day. There are four bidders (B1-B4) with the following dollar values per click: v = 8, v 6, vs = 4, vs 2. (a) Find the efficient assignment. (b) Find the lowest per click market-clearing prices. (c) Find the highest per click market-clearing prices, (d) Fully specify and draw the complete set of ALL per click market-clearing prices.arrow_forwardQuestion 6 A collector of rare antique books wants to sell a book from her collection on eBay. Discuss the following decisions, considering the characteristics of the item for sale and the anticipated market for this item: (a) When offering the book in a regular auction, what should the start price of the auction be? (b) When offering the book at a fixed posted price, would the optimal posted price be above or below the optimal start price of an auction in part (a)? (c) Should the item be offered in a regular auction or at a fixed posted price?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education