Exercise 1.8. Consider the following "third-price" auction. There are n≥ 3 bidders. A single object is auctioned and Player / values the object $v,, with V, > 0. The bids are simultaneous and secret. The utility of Player / is: 0 if she does not win and (v-p) if she wins and pays $p. Every non-negative number is an admissible bid. Let b, denote the bid of Player i. The winner is the highest bidder. In case of ties the bidder with the lowest index among those who submitted the highest bid wins (e.g. if the highest bid is $120 and it is submitted by players 6, 12 and 15, then the winner is Player 6). The losers don't get anything and don't pay anything. The winner gets the object and pays the third highest bid, which is defined as follows. Let be the winner and fix a Player j such that b₁ = max({b,,...,b,}\ {b}) [if GAME THEORY - Giacomo Bonanno 39 max({b,...,b}\{b;}) contains more than one element, then we pick one of them]. Then the third price is defined as max({b₁,...,b}\{b,,b;}). For example, if n = 3 and the bids are b₁ = 30, b₂ = 40 and b₁ = 40 then the winner is Player 2 and she pays $30; if b₁ = b₁₂ = b₁ = 50 then the winner is Player 1 and she pays $50. For simplicity, let us restrict attention to the case where n = 3 and v₁ > V₂ > V3 >0. Does Player 1 have a weakly dominant strategy in this auction?
Exercise 1.8. Consider the following "third-price" auction. There are n≥ 3 bidders. A single object is auctioned and Player / values the object $v,, with V, > 0. The bids are simultaneous and secret. The utility of Player / is: 0 if she does not win and (v-p) if she wins and pays $p. Every non-negative number is an admissible bid. Let b, denote the bid of Player i. The winner is the highest bidder. In case of ties the bidder with the lowest index among those who submitted the highest bid wins (e.g. if the highest bid is $120 and it is submitted by players 6, 12 and 15, then the winner is Player 6). The losers don't get anything and don't pay anything. The winner gets the object and pays the third highest bid, which is defined as follows. Let be the winner and fix a Player j such that b₁ = max({b,,...,b,}\ {b}) [if GAME THEORY - Giacomo Bonanno 39 max({b,...,b}\{b;}) contains more than one element, then we pick one of them]. Then the third price is defined as max({b₁,...,b}\{b,,b;}). For example, if n = 3 and the bids are b₁ = 30, b₂ = 40 and b₁ = 40 then the winner is Player 2 and she pays $30; if b₁ = b₁₂ = b₁ = 50 then the winner is Player 1 and she pays $50. For simplicity, let us restrict attention to the case where n = 3 and v₁ > V₂ > V3 >0. Does Player 1 have a weakly dominant strategy in this auction?
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
Chapter18: Auctions
Section: Chapter Questions
Problem 10MC
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![Exercise 1.8. Consider the following "third-price" auction. There are n≥ 3 bidders.
A single object is auctioned and Player / values the object $v,, with V, > 0. The bids
are simultaneous and secret. The utility of Player / is: 0 if she does not win and
(v-p) if she wins and pays $p. Every non-negative number is an admissible bid.
Let b, denote the bid of Player i. The winner is the highest bidder. In case of ties
the bidder with the lowest index among those who submitted the highest bid wins
(e.g. if the highest bid is $120 and it is submitted by players 6, 12 and 15, then the
winner is Player 6). The losers don't get anything and don't pay anything. The
winner gets the object and pays the third highest bid, which is defined as follows.
Let be the winner and fix a Player j such that b₁ = max({b,,...,b,}\ {b}) [if
GAME THEORY - Giacomo Bonanno
39
max({b,...,b}\{b;}) contains more than one element, then we pick one of them].
Then the third price is defined as max({b₁,...,b}\{b,,b;}). For example, if n = 3
and the bids are b₁ = 30, b₂ = 40 and b₁ = 40 then the winner is Player 2 and she
pays $30; if b₁ = b₁₂ = b₁ = 50 then the winner is Player 1 and she pays $50.
For simplicity, let us restrict attention to the case where n = 3 and v₁ > V₂ > V3 >0.
Does Player 1 have a weakly dominant strategy in this auction?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F833227fa-6456-4698-8430-712200a97c6f%2Fd480b7e2-bfb5-42cb-b1d7-1bf009617af4%2Fwwuzdbj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 1.8. Consider the following "third-price" auction. There are n≥ 3 bidders.
A single object is auctioned and Player / values the object $v,, with V, > 0. The bids
are simultaneous and secret. The utility of Player / is: 0 if she does not win and
(v-p) if she wins and pays $p. Every non-negative number is an admissible bid.
Let b, denote the bid of Player i. The winner is the highest bidder. In case of ties
the bidder with the lowest index among those who submitted the highest bid wins
(e.g. if the highest bid is $120 and it is submitted by players 6, 12 and 15, then the
winner is Player 6). The losers don't get anything and don't pay anything. The
winner gets the object and pays the third highest bid, which is defined as follows.
Let be the winner and fix a Player j such that b₁ = max({b,,...,b,}\ {b}) [if
GAME THEORY - Giacomo Bonanno
39
max({b,...,b}\{b;}) contains more than one element, then we pick one of them].
Then the third price is defined as max({b₁,...,b}\{b,,b;}). For example, if n = 3
and the bids are b₁ = 30, b₂ = 40 and b₁ = 40 then the winner is Player 2 and she
pays $30; if b₁ = b₁₂ = b₁ = 50 then the winner is Player 1 and she pays $50.
For simplicity, let us restrict attention to the case where n = 3 and v₁ > V₂ > V3 >0.
Does Player 1 have a weakly dominant strategy in this auction?
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