Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 17, Problem 6P
(a)
To determine
A situation in which the bidder would regret bidding
(b)
To determine
Situation in which the bidder would regret “under-bidding” of
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PJ has been owning a City Golf, model 2004 for the past 15 years and now plans to sell it. Town auctioneers has offered to sell his car at their next auction. This is the first time PJ is hearing at an auction.
PJ has approached you to explain to him what auction means and asked you if he should sell his car on auction or not. Briefly explain to PJ
“While auctions are appealing in theory, the challenges of auction design in practice are insurmountable” discuss
Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300.a. In a standard “highest-bid” auction, what bid would a rational person make?
The rational choice is to bid $500 since that is what the item is worth to you.
The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid.
The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit.
The rational choice is to bid over $500 to guarantee that you win the item.
b. In a Vickrey auction, what bid would he make?
The rational choice is to bid slightly more than $500.
The rational choice is to bid $500.
The rational choice is to bid slightly less than $500.
The rational choice is to bid slightly more than $300.
Chapter 17 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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