(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. Price starts at 0 (at this price neither bidder would be happy to win the project). The price goes up continuously: at time t 2 [0; 1]; the price will be t. At any time t; any bidder can say ìsupercal- ifragilisticexpialidocious.îThe Örst bidder to say it will be the winner and he is paid that prevailing price at that moment for the project. If both bidders say it at the same time, a winner is selected randomly. If no player says it until t = 1 (and the price will be 1 by then), the game ends and a winner is selected randomly for a price of 1: Analyze this auction. You donít have to provide rigorous mathematical proofs. How does this auction relate to (a) or (b)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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)?

(b) Suppose the auction is conducted as follows. Price starts at 0 (at this price neither bidder would be happy to win the project). The price goes up continuously: at time t 2 [0; 1]; the price will be t. At any time t; any bidder can say ìsupercal- ifragilisticexpialidocious.îThe Örst bidder to say it will be the winner and he is paid that prevailing price at that moment for the project. If both bidders say it at the same time, a winner is selected randomly. If no player says it until t = 1 (and the price will be 1 by then), the game ends and a winner is selected randomly for a price of 1: Analyze this auction. You donít have to provide rigorous mathematical proofs. How does this auction relate to (a) or (b)?

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