Ch. 18

Question 1

oral auction or English Auction

Answer 1

in this auction type, bidders submit increasing bids until only one bidder remains. The item is awarded to the last remaining bidder.

Question 2

Three bidders with values of $5, $100, and $20,000 are participating in an oral English auction. What is the likely resulting price?

a. $5	
b. $100	
c. $10,000	
d. $20,000

Answer 2

b. $100

Question 3

Two bidders are participating in an English auction. The price will be primarily determined by

a. the value of the winning bidder.	
b. the value of the losing bidder.	
c. the value of the bidder with the higher value.	
d. The auctionee

Answer 3

b. the value of the losing bidder.

Question 4

vickrey auction or a second-price auction is

Answer 4

a sealed-bid auction in which the item is awarded to the highest bidder, but the winner pays only the second-highest bid.

Question 5

The optimal strategy in a second-price auction is to bid _____ your value

Answer 5

exactly

Question 6

a second-price auction is actually strategically equivalent to the _______ auction.

Answer 6

English

Question 7

In an English auction, everyone is willing to bid up to his or her value, and the highest-valued bidder wins at a price equal to (or just above) the __________.

Answer 7

the second-highest value.

Question 8

A second-price auction allows _________ to simulate what would have happened in an English auction, but without the need to have bidders show up at the same place and time.

Answer 8

the auctioneer

Question 9

As in the second-price auction, the ___________ determines the price.

Answer 9

highest losing bid

Question 10

As in the second-price auction, it is optimal to ___________.

Answer 10

bid your value

Question 11

A bidder values a rare sports card at $400, and expects that other bidders value it between $200 and $1,000. The auction is a sealed-bid second-price auction. Which of the following is likely to be the best bid?

a. $250	
b. $300	
c. $400	
d. $1,000

Answer 11

c. $400

Question 12

In a sealed-bid first-price auction, the highest bidder wins ________

Answer 12

the item at a price equal to the highest bid.

Question 13

In contrast to a second-price auction, in a sealed-bid first-price auction, you have to ____________.

Therefore, each bidder faces a __________: he can bid higher and raise the probability of winning, but doing so lowers his surplus (or profit) if he does win.

Answer 13

pay the amount you bid.

trade-off.

Question 14

In first price auction, bidding exactly your value guarantees ________ profit whether you win or lose, each bidder shades his bid; that is, he balances these two effects by bidding _____ his value.

You should bid more—shade your value _____ —if the competition is stronger.

Answer 14

zero

below

less

Question 15

A bidder values a rare sports card at $400, and expects that other bidders value it between $200 and $1,000. The auction is a sealed-bid first-price auction. Which of the following is potentially an optimal bid?

a. $300	
b. $400	
c. $600	
d. $1,000

Answer 15

a. $300

Question 16

In oral/English auctions the _________ bidder determines the price

Answer 16

losing

Question 17

viceroy or second price auctions are easier to run and well suited for the

Answer 17

internet

Question 18

in sealed bid first price auctions bidders must balance the _________ of winning against the _______ they will make if they do win.

Answer 18

probability

profit

Question 19

in sealed bid first place auctions, optimal bids are ______ than bidder’s private value

Answer 19

optimal

Question 20

Collusion or bid rigging is one of the biggest _______ for auctioneers.

Answer 20

challenges

Question 21

bidders can raise profits in collusion or bid rigging by

Answer 21

agreeing not to bid against each other

Question 22

if collusion is suspected, do not:

Answer 22

hold open auctions

hold small and frequent auctions

announce the winners or the winning bids

Question 23

agreement between bidders is a _______ violation of ________.

Answer 23

criminal

antitrust laws of the U.S. and most of other developed countries

Question 24

collusion creates __________ among conspirators.

Answer 24

prisoner’s dilemma

Question 25

Collusion is more likely in ________, _________ auctions than in big, infrequent ones.

Answer 25

small, frequent

Question 26

Collusion is more likely in _________ than in sealed-bid auctions.

Answer 26

oral-auctions

Question 27

Collusion is more likely when __________ and _________ are identified.

Answer 27

winning bidders

winning bids

Question 28

Which of the following is true about collusion in auctions?

a. Collusion is more likely in oral auctions than in sealed-bid auctions.	
b. Collusion is more likely when winning bidders are not identified.	
c. Collusion is more likely in infrequent auctions than in frequent ones	
d. Collusion is likely to lead to higher prices for the auctioneer.

Answer 28

a. Collusion is more likely in oral auctions than in sealed-bid auctions.

Question 29

in a common value auction everyone has the ______ value but each has only an _________ of what it is.

Answer 29

same

estimate

Question 30

winner’s curse

arises in _____________.

Answer 30

common-value auctions.

Question 31

Winner;s curse refers to the fact that the “winner” of the auction is usually the bidder with the _____________.

To avoid bidding too aggressively, bidders should bid as if their estimate is the ____________ and ________ their estimate accordingly.

Answer 31

highest estimate of the item’s value

most optimistic

reduce

Question 32

to avoid a winner’s course in common-value auctions, _____________.

Bid as if your estimate is the most __________, and everyone else thinks it is worth less.

Answer 32

bid below your estimate value.

optimistic

Question 33

To avoid the winner’s curse, you bid as if everyone else thinks the ____________.

Answer 33

value is less than your estimate.

Question 34

To avoid the winners’ curse, you bid ______ as the number of bidders increases.

Answer 34

less aggressively

Question 35

The winner’s curse is especially bad when rival bidders have ______ information about the value than you do.

Answer 35

better

Question 36

If you’re the auctioneer, you want to encourage aggressive bidding by _______ as much information as you can about the value of the item.

By reducing _________ about the value of the item, you mitigate many of the effects of the winner’s curse, which encourages bidders to bid closer to their estimated values.

Answer 36

releasing

uncertainty

Question 37

Oral auctions return higher prices in a common-value setting than sealed-bid auction because they _______.

Answer 37

release more information

Question 38

How does one avoid the winner’s curse?

a. Bid lower when there are more bidders than when there are fewer bidders.	
b. Assume that everyone else thinks that the value of the item for sale is less than your estimate.	
c. Avoid auctions when others have more information about the object's value than you do.	
d. All of the above.

Answer 38

d. All of the above.

Question 39

Which of the following about private-value and common-value auctions is true?

a. In common-value auctions, bidders don't know their values.	
b. In private-value auctions, bidders can suffer from the winner's curse.	
c. In common-value auctions, every bidder's value is the same.	
d. In common-value auctions, bidders bid their expected value.

Answer 39

c. In common-value auctions, every bidder’s value is the same.