A seller has an indivisible asset to sell. Her reservation value for the asset is s, which she knows privately. A potential buyer thinks that the assetís value to him is b, which he privately knows. Assume that s and b are independently and uniformly drawn from [0, 1]. If the seller sells the asset to the buyer for a price of p, the seller's payoff is p - s and the buyer's payoff is b - p. Suppose the buyer makes a take-it-or-leave-it offer p to the seller. What's the optimal offer if the buyer's value is b = 1/2?
A seller has an indivisible asset to sell. Her reservation value for the asset is s, which she knows privately. A potential buyer thinks that the assetís value to him is b, which he privately knows. Assume that s and b are independently and uniformly drawn from [0, 1]. If the seller sells the asset to the buyer for a price of p, the seller's payoff is p - s and the buyer's payoff is b - p. Suppose the buyer makes a take-it-or-leave-it offer p to the seller. What's the optimal offer if the buyer's value is b = 1/2?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A seller has an indivisible asset to sell. Her reservation value for the asset is s, which she knows privately. A potential buyer thinks that the assetís value to him is b, which he privately knows. Assume that s and b are independently and uniformly drawn from [0, 1]. If the seller sells the asset to the buyer for a price of p, the seller's payoff is p - s and the buyer's payoff
is b - p.
Suppose the buyer makes a take-it-or-leave-it offer p to the seller. What's the optimal offer if the buyer's value is b = 1/2?
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