Ch. 18 Flashcards
oral auction or English Auction
in this auction type, bidders submit increasing bids until only one bidder remains. The item is awarded to the last remaining bidder.
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
b. $100
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
b. the value of the losing bidder.
vickrey auction or a second-price auction is
a sealed-bid auction in which the item is awarded to the highest bidder, but the winner pays only the second-highest bid.
The optimal strategy in a second-price auction is to bid _____ your value
exactly
a second-price auction is actually strategically equivalent to the _______ auction.
English
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 __________.
the second-highest value.
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.
the auctioneer
As in the second-price auction, the ___________ determines the price.
highest losing bid
As in the second-price auction, it is optimal to ___________.
bid your value
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
c. $400
In a sealed-bid first-price auction, the highest bidder wins ________
the item at a price equal to the highest bid.
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.
pay the amount you bid.
trade-off.
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.
zero
below
less
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
a. $300
In oral/English auctions the _________ bidder determines the price
losing
viceroy or second price auctions are easier to run and well suited for the
internet
in sealed bid first price auctions bidders must balance the _________ of winning against the _______ they will make if they do win.
probability
profit
in sealed bid first place auctions, optimal bids are ______ than bidder’s private value
optimal
Collusion or bid rigging is one of the biggest _______ for auctioneers.
challenges
bidders can raise profits in collusion or bid rigging by
agreeing not to bid against each other
if collusion is suspected, do not:
hold open auctions
hold small and frequent auctions
announce the winners or the winning bids
agreement between bidders is a _______ violation of ________.
criminal
antitrust laws of the U.S. and most of other developed countries
collusion creates __________ among conspirators.
prisoner’s dilemma
Collusion is more likely in ________, _________ auctions than in big, infrequent ones.
small, frequent
Collusion is more likely in _________ than in sealed-bid auctions.
oral-auctions
Collusion is more likely when __________ and _________ are identified.
winning bidders
winning bids
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.
a. Collusion is more likely in oral auctions than in sealed-bid auctions.
in a common value auction everyone has the ______ value but each has only an _________ of what it is.
same
estimate
winner’s curse
arises in _____________.
common-value auctions.
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.
highest estimate of the item’s value
most optimistic
reduce
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.
bid below your estimate value.
optimistic
To avoid the winner’s curse, you bid as if everyone else thinks the ____________.
value is less than your estimate.
To avoid the winners’ curse, you bid ______ as the number of bidders increases.
less aggressively
The winner’s curse is especially bad when rival bidders have ______ information about the value than you do.
better
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.
releasing
uncertainty
Oral auctions return higher prices in a common-value setting than sealed-bid auction because they _______.
release more information
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.
d. All of the above.
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.
c. In common-value auctions, every bidder’s value is the same.
