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    Problem Set 7

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    Luka Janjalashvili
    The document outlines three problems related to auctions and game theory: 1) A Cournot duopoly model with dependent costs for the two firms. Firms choose quantities and the problem is to find the Bayesian Nash equilibrium. 2) A private value auction with two bidders. The problem is to find the symmetric Bayesian Nash equilibrium bidding strategy. 3) An auction for a rare record with 10 potential bidders. Several auction formats are considered and their expected revenues are calculated. The option that results in truthful bidding in a Bayesian Nash equilibrium is also identified.

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    Problem Set 7

    Uploaded by

    Luka Janjalashvili
    39 views2 pages
    The document outlines three problems related to auctions and game theory: 1) A Cournot duopoly model with dependent costs for the two firms. Firms choose quantities and the problem is to find the Bayesian Nash equilibrium. 2) A private value auction with two bidders. The problem is to find the symmetric Bayesian Nash equilibrium bidding strategy. 3) An auction for a rare record with 10 potential bidders. Several auction formats are considered and their expected revenues are calculated. The option that results in truthful bidding in a Bayesian Nash equilibrium is also identified.

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    The document outlines three problems related to auctions and game theory: 1) A Cournot duopoly model with dependent costs for the two firms. Firms choose quantities and the problem is to find the Bayesian Nash equilibrium. 2) A private value auction with two bidders. The problem is to find the symmetric Bayesian Nash equilibrium bidding strategy. 3) An auction for a rare record with 10 potential bidders. Several auction formats are considered and their expected revenues are calculated. The option that results in truthful bidding in a Bayesian Nash equilibrium is also identified.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views2 pages

    Problem Set 7

    Uploaded by

    Luka Janjalashvili
    The document outlines three problems related to auctions and game theory: 1) A Cournot duopoly model with dependent costs for the two firms. Firms choose quantities and the problem is to find the Bayesian Nash equilibrium. 2) A private value auction with two bidders. The problem is to find the symmetric Bayesian Nash equilibrium bidding strategy. 3) An auction for a rare record with 10 potential bidders. Several auction formats are considered and their expected revenues are calculated. The option that results in truthful bidding in a Bayesian Nash equilibrium is also identified.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Problem Set 7

    Deadline December 24 11:59PM

    1 Cournot Duopoly with Dependent Assignment of Cost


    functions
    Assume demand is given by P = 120 − Q and the cost function of firm 1 is C1 (q) = 9q or
    C2 (q) = 15. Cost function of firm 2 is C2 (q) = 9q or C2 (q) = 15q. Type of costs for these firms
    are this dependent on each other. Namely there is following prior belief about the types of costs.
      2   3
    P r C1 (q) = 9q, C2 (q) = 9q = ; P r C1 (q) = 9q, C2 (q) = 12q = ;
    10 10
      3   2
    P r C1 (q) = 12q, C2 (q) = 9q = ; P r C1 (q) = 12q, C2 (q) = 12q =
    10 10
    Or more conveniently as prior a table

    High Cost Low Cost


    2 3
    High Cost 10 10
    3 2
    Low Cost 10 10

    Firms choose the quantities. Find the Bayesian Nash equilibrium of this game.

    2 Private Value Auctions


    2.1 Finite Types
    Consider firs price sealed bid auction between two bidders. Valuations and probabilities are:

    Valuation 10 12 15 20
    Probability 0.2 0.3 0.4 0.1

    Bids are integers. Find a symmetric Bayes-Nash equilibrium.

    2.2 A Bidding Strategy in the First Price Sealed-Bid Auction


    Assume you (player n) participate in auction together with n − 1 other players (names of other
    players are 1, 2, ..., n − 1). You think that other players’ valuations are independent from each
    other and are drawn from U [0, 1]. If your bidding strategy is:
    
    b(v) = E max(v1 , v2 , ..., vn−1 )|v > vi , ∀i < n)

    What will be your bid when your valuation is v = 0.8 and n = 8?


    Assume others view the game exactly as you. Is all players playing the same strategy as you a
    symmetric BNE?

    1
    2.3 Revenue, Auction Types and Double Auction
    Assume you have a rare record of Tamaz Molodini and you want to sell it and donate the revenue
    to a charity. You found a group “Georgian Fans of TM” and made an anonymous poll to figure
    out the distribution of willingness to pay (or valuation) for your record and found out that there
    are n potential buyers and their valuations look independent from each other and are given by
    w = 100 + 110v where v ∼ U [0, 1] (n potential bidders also observe poll outcomes)

    • Question 1: What will be your expected revenue if n = 10 you decide to use second price
    sealed-bid auction?

    • Question 2: What will be your expected revenue if n = 10 you decide to use first price
    sealed-bid auction?

    • Question 3: Now, assume you have 2 identical records and want to sell them. There are
    few options how to sell

    – Option 1: 2 consecutive second price sealed-bid auction where bidders of the first
    auction are not aware that you are going to sell the second vinyl as well
    – Option 2: 2 consecutive first price sealed-bid auction where bidders of the first auction
    are not aware that you are going to sell the second vinyl as well
    – Option 3: 2 consecutive second price sealed-bid auction where bidders of the first
    auction are aware that you are going to sell the second vinyl as well
    – Option 4: 2 consecutive first price sealed-bid auction where bidders of the first auction
    are aware that you are going to sell the second vinyl as well
    – Option 5: Double second price sealed bid auction in which two highest winners get
    vinyl but pay third highest bid

    Assume bidders have unit demand and valuations do not change (unless bidder won the first
    auction, in such case she is out of competition). Which one would you choose if you want
    to maximize revenue and what will be the expected revenue? Fully formal answer is not
    required.

    From above options which one is such that it is BNE to bid true valuation?

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