Robert is participating in a Dutch auction. If he values the item being auctioned at $5,500 and there are 5 bidders in total, what should Robert's optimal bidding strategy be?
What will be an ideal response?
A Dutch auction is an open-outcry auction in which the auctioneer starts bidding at a price far above any bidder's willingness to pay and lowers the price until one bidder accepts the offer. If a bidder accepts the offer when the price equals his value for the good being auctioned, he wins the auction but earns zero consumer surplus. However, if he does not accept the offer, there is a possibility that another bidder will accept the offer. A simple strategy to optimize in this case is to multiply willingness to pay by the number of other bidders divided by the total number of bidders. Robert should follow a similar strategy and place a bid when price reaches $5,500 × 4/5 = $4,400.
You might also like to view...
Which of the following is a possible solution to the adverse selection problem?
a. Screening b. Signaling c. All of the above d. None of the above
Linda, a business management student, works full time as a salesperson in a shoe store. According to the unemployment statistics, Linda is considered employed
a. True b. False Indicate whether the statement is true or false
Milton Friedman concluded that we have never had a serious inflation that was not accompanied by ___________.
Fill in the blank(s) with the appropriate word(s).
The recession of 2007-2009 has been
A. less severe than most post-World War II recessions. B. typical of post-World War II recessions. C. one of (if not) the worst post-World War II recession.