A famous local baker has approached you with a problem. She is only able to make one wedding cake each day and 5 people have requested a wedding cake on the same day. Rather than pick randomly which person she will sell the cake to, she decides to have an auction. Is this auction more representative of a private value or common value auction? Why? Which auction method(s) do you recommend the baker choose to maximize the amount of money she can make, and why?
A famous local baker has approached you with a problem. She is only able to make one wedding cake each day and 5 people have requested a wedding cake on the same day. Rather than pick randomly which person she will sell the cake to, she decides to have an auction. Is this auction more representative of a private value or common value auction? Why? Which auction method(s) do you recommend the baker choose to maximize the amount of money she can make, and why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A famous local baker has approached you with a problem. She is only able to make one wedding cake each day and 5 people have requested a wedding cake on the same day. Rather than pick randomly which person she will sell the cake to, she decides to have an auction.
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- Is this auction more representative of a private value or common value auction? Why?
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- Which auction method(s) do you recommend the baker choose to maximize the amount of money she can make, and why?
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