Consider two bidders who are competing for an item in an 'all-pay auction.' Bidder 1 values the item at $300, bidder 2 at $500. Independently of cach other, they both submit a bid, which can be either $0, $100, or $200. The highest bidder wins the item, but both have to pay the bid they placed. In case of a tie (both bidders placing equal bids), a fair coin is flipped to determine the winner (bidders are risk-neutral, that is, they care only about their average gains minus the cost).' (a) Represent this situation as a strategic-form game. (b) Perform the iterated elimination of dominated strategies.

Consider two bidders who are competing for an item in an 'all-pay auction.' Bidder 1 values the item at $300, bidder 2 at $500. Independently of cach other, they both submit a bid, which can be either $0, $100, or $200. The highest bidder wins the item, but both have to pay the bid they placed. In case of a tie (both bidders placing equal bids), a fair coin is flipped to determine the winner (bidders are risk-neutral, that is, they care only about their average gains minus the cost).' (a) Represent this situation as a strategic-form game. (b) Perform the iterated elimination of dominated strategies.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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