Bayesian Nash equilibrium

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
Problem 2MC
icon
Related questions
Question

The Dean is looking for a tenured professor. Monetary incentives are needed to get someone interested, but how much? The Dean decides to use an auction to do the job. Two professors, equally qualified, applied for the position. The two professors are invited to covertly submit their bids to the Dean. The Dean will give the position to the professor who submits the lower bid (if there is a tie, the job is assigned randomly). The professor who gets the job will be paid his/her own bid. Each professor's reservation value for teaching the course is his/her private information. It is common knowledge that their reservation values are independently and uniformly distributed over [0,100]. So if a professor with a reservation value of 60 wins with a bid of 50, his payoff is 60 - 50 = 10. 

(a) Find a Bayesian Nash equilibrium of the bidding game.

(b) Suppose the two professors' reservation values are 60 and 70, respectively. What are their bids in the Bayesian Nash equilibrium you
computed in part (a)? Who is the winner? What's the payoff of the
winner?

(c) The faculty committee dislikes the auction rule. They propose to
modify the auction slightly. Instead of the winner getting paid his/her
own bid, the winner is paid his own bid plus a 10% premium.
i. Find a Bayesian Nash equilibrium of the bidding game.
ii. Suppose the two professors' reservation values are 60 and 70,
respectively. What are their bids in the Bayesian Nash equilibrium you computed in part (c)? Who is the winner? What's the
payoff of the winner?

Please answer part c)

Parts a) and b) put there for context.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 40 images

Blurred answer
Knowledge Booster
Nash Equilibrium
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
Economics
ISBN:
9781285635101
Author:
MCEACHERN
Publisher:
Cengage
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
ECON MICRO
ECON MICRO
Economics
ISBN:
9781337000536
Author:
William A. McEachern
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning