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
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Chapter 15A, Problem 1.2CE
To determine
To describe: Whether W will wish to amend its earlier bid in round 3.
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A company is considering the strategy to further expand its activity into a foreign market it recently accessed. The foreign government has announced that a new industrial site will be offered for sale on a competitive tender basis, the site going to the company making the highest bid. The multinational has a good experience with this type of auctions, and – based on its assessment – it decides that if it is to bid for the site, it will place a bid of £750 million. In the past, 70 percent of the company’s bids for such type of projects have been successful.
The marketing department indicates that expansions of the multinational’s foreign market activity can be expected to generate revenue of around £1,500 million if demand turns out to be high, versus only £500 million if demand turns out to be low. Data scientists have indicated that the probability of high demand is 0.60.
If the company is…
Complete Information: Consider a set of N players participating in a sealed-
bid second-price auction, but assume that there is complete information so that
each player knows the valuation of every other player.
a. Is it still true that each player bidding his valuation is a weakly domi-
nant strategy?
b. Are there other Nash equilibria of this game?
Analyze 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?
Chapter 15A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Your company is bidding for mineral rights to a tract of land for drilling oil. Based on your geological survey reports, your valuation of the mineral rights is $38 million. You believe the distribution of bids will be uniform for the mineral rights, with a high value of $45 million and a low value of $20 million. In a second-price sealed-bid auction, how much should you for bid if there are 5 bidders? a. $41.40 Million O b. $45.00 Million Oc. $38.00 Million O d. $34.40 Millionarrow_forwardExplain how the strategic choice of reservation price can raise expected profitability yet threaten efficiency in an English auction.arrow_forwardSuppose that Alpha Inc., Richardson Industries, and K-Tek are the only three firms interested in a plot of land on the outskirts of town. The lot is being auctioned by a second-price sealed-bid auction. Alpha values the lot at $17,000, Richardson at $20,000, and K-Tek at $10,000. Each bidding firm's consumer surplus is CS=v₁ - P if it wins the auction and 0 if it loses. The values are private. What is each bidder's optimal bid? Who wins the auction, and what price does that firm pay? Richardson's optimal bid is $ and K-Tek's is $ Alpha's optimal bid is $ whole numbers.) (Enter your responses asarrow_forward
- a. Consider the game faced by the British and Dutch managers when both are given contracts that compensate them with (1)/(2) of 1% of revenue. The strategic form game is shown. Find the Nash equilibria. b. Now consider the game between the British and Dutch shareholders as to what kind of contracts to give their managers. Assume that they simultaneously choose between a contract that gives the manager 1% of profit and one that gives him (1)/(2) of 1% of revenue. Assume, as before, that the shareholders’ payoff is profit (and we ignore the trivial amount that they pay to their managers). After a pair of contracts is selected, the two contracts are revealed to both managers, and the managers then choose between supply levels of low, moderate, and high. Find all SPNE.arrow_forwardTRADE. Consider a bilateral trade model with two-sided asymmetric information. The buyer's value is private information to the buyer, vB and the seller's value vs is private information to the seller. (a)Derive the linear Bayes Nash Equilibrium in a double auction. (b)Assume that the seller can credibly disclose their valuae. What is your intuition, would he want to commit to such transparency?arrow_forwardThe pricing strategies of MTN and Vodacom are shown in the table below. They must decide whether to charge a high or low price for their internet service. The four pairs of payoff values represent what each company expects to earn or lose in millions of rands, depending on the pricing strategy chosen by the other company. Vodacom's Price Strategy MTN's Price Strategy High Price Low Price High Price Vodacom +R200 200 Vodacom-R100 MTN +R500. Low Price a) Vodacom will charge a low price; MTN will charge a high price. b) Vodacom will charge a high price; MTN will charge a low price.. c) Both Vodacom and MTN will charge a low price. d) Both Vodacom and MTN will charge a high price. Vodacom +R500 MTN-R100 Vodacom+R100 MTN+R100 If it's expected that the incomes of people living in rural South Africa is expected to increase, what will the equilibrium outcome be, ceteris paribus?arrow_forward
- Consider a similar auction problm as before. Two Örms compete for a contract to build a university building. Their construction costs are independent and uniformly drawn from [0; 1]: (a) Suppose the auction is conducted as follows. Price starts at 1 (at this price both bidders would be happy to win the project). The price goes down continuously: at time t 2 [0;1]; the price will be 1 t. At any time t; any bidder can shout ìáoccinaucinihilipiliÖcious.î Once that happens, the price will stop to decline. The bidder who remains silent becomes the winner and he is paid the price at that moment. If both players say it at the same time, the auction ends without a winner. If no player speaks until t = 1 (and the price will be zero by then), the game ends and a winner is selected randomly for a price of 0: Analyze this auction. You donít have to provide rigorous mathematical proofs. How does this auction relate to (a) or (b)? 1 (b) Suppose the auction is conducted as follows.…arrow_forwarda) Return to the two-player game tree in part (a) of Exercise U2 in Chapter 3. (a) (b) Write the game in strategic form, making Albus the Row player and Minerva the Column player. Find all Nash equilibria. For those equilibria you found in part (a) of this exercise that are not subgame-perfect, identify the reason. 13,0 a MINERVA 12,1 N 1,1 a MINERVA ALBUS E S MINERVA 15,0 20 a 4,4 b 1,5arrow_forwardHow is bid -rigging used as a strategy by firms ?arrow_forward
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