Assume that two collectors, X and Y are in a first prize sealed bid auction for a batch of vintage comic books. X and Y have different valuations (V) for this batch of comic books e.g. VX And VB are between $2000 and $4000. Both collectors know their own V but does not know the V of the other collector. All they know is that the other collector’s V is a uniformly distributed number between $2000 and $4000. Assume risk neutrality for X and Y e.g. expected payoff for X is: (VX – bX)Pr(bX) and expected payoff for Y is (VY – bY)Pr(bY). These collectors will make their bids strategically. Show how X’s bidding strategy is bX = ½ Vx + 1 and Y’s is bY = ½ Vy +1 in a Nash equilibrium.
Assume that two collectors, X and Y are in a first prize sealed bid auction for a batch of vintage comic books. X and Y have different valuations (V) for this batch of comic books e.g. VX And VB are between $2000 and $4000. Both collectors know their own V but does not know the V of the other collector. All they know is that the other collector’s V is a uniformly distributed number between $2000 and $4000. Assume risk neutrality for X and Y e.g. expected payoff for X is: (VX – bX)Pr(bX) and expected payoff for Y is (VY – bY)Pr(bY). These collectors will make their bids strategically. Show how X’s bidding strategy is bX = ½ Vx + 1 and Y’s is bY = ½ Vy +1 in a Nash equilibrium.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume that two collectors, X and Y are in a first prize sealed bid auction for a batch of vintage comic books.
X and Y have different valuations (V) for this batch of comic books e.g. VX And VB are between $2000 and $4000.
Both collectors know their own V but does not know the V of the other collector. All they know is that the other collector’s V is a uniformly distributed number between $2000 and $4000.
Assume risk neutrality for X and Y e.g. expected payoff for X is: (VX – bX)Pr(bX) and expected payoff for Y is (VY – bY)Pr(bY). These collectors will make their bids strategically.
Show how X’s bidding strategy is bX = ½ Vx + 1 and Y’s is bY = ½ Vy +1 in a Nash equilibrium.
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