David wants to auction a painting, and there are two potential buyers. The value for eachbuyer is either 0 or 10, each value equally likely. Suppose he offers to sell the object for $6, and the two buyers simultaneously accept or reject. If exactly one buyer accepts, the object sold to that person for $6. If both accept, the object is allocated randomly to the buvers also for $6. If neither
David wants to auction a painting, and there are two potential buyers. The value for eachbuyer is either 0 or 10, each value equally likely. Suppose he offers to sell the object for $6, and the two buyers simultaneously accept or reject. If exactly one buyer accepts, the object sold to that person for $6. If both accept, the object is allocated randomly to the buvers also for $6. If neither
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Frontiers Of Microeconomics
Section: Chapter Questions
Problem 6PA
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Transcribed Image Text:David wants to auction a painting, and there are
two potential buyers. The value for eachbuyer is
either O or 10, each value equally likely. Suppose
he offers to sell the object for $6, and the two
buyers simultaneously accept or reject. If exactly
one buyer accepts, the object sold to that person
for $6. If both accept, the object is allocated
randomly to the buyers, also for $6. If neither
accepts, the object is allocated randomly to the
bidders for $O.
(a) Identify the type space and strategy space for
each buyer.
(b) Show that there is an equilibrium in which
buyers with value 10 always accept.
(c) Show that there is an equilibrium in which
buyers with value 10 always reject.
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