a) Define what common value means in the context of auction theory and provide an example

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Question D3.
a) Define what common value means in the context of auction theory and provide an example
b) Consider a private value Dutch auction with two bidders who value the item for sale at v, and
v2 respectively. Each bidder believes that the other's value lies between 0 and V with each
value being equally likely and the payoff to the winning bidder is the difference between what
they paid and what they valued the item at, the losing bidder receives nothing. Derive the
Nash Equilibrium for this auction.
c) In the lectures we discussed the 3G spectrum auctions, would the licences up for sale be
considered private or common value goods? Explain your answer and then discuss how this
might impact upon the outcome of an auction selling such a licence.
Transcribed Image Text:Question D3. a) Define what common value means in the context of auction theory and provide an example b) Consider a private value Dutch auction with two bidders who value the item for sale at v, and v2 respectively. Each bidder believes that the other's value lies between 0 and V with each value being equally likely and the payoff to the winning bidder is the difference between what they paid and what they valued the item at, the losing bidder receives nothing. Derive the Nash Equilibrium for this auction. c) In the lectures we discussed the 3G spectrum auctions, would the licences up for sale be considered private or common value goods? Explain your answer and then discuss how this might impact upon the outcome of an auction selling such a licence.
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