Microeconomics
Microeconomics
11th Edition
ISBN: 9781260507041
Author: Colander, David
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 22, Problem 4QE
To determine

Explain the incentive compatibility problem.

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Styles In an auction, potential buyers compete for a good by submitting bids. Adam Gallinsky, a social scientist from NWU, compared eBay auctions in which the same good was sold. He found on average that, the higher the number of bidders the higher the sales price. For example, in two separate auctions of identical IPods, the one with the higher number of bidders brought the higher sales price. According to Gallinsky, this explains why smart sellers set absurdly low opening prices (the lowest price the seller will accept), such as 1 cent for a new IPod. Use the concept of consumer and producer surplus to explain this reasoning.
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