Summary 699b. Now suppose that you face two other bidders and believe that a typical
competitor’s valuefor the building lies between $2 million and $3.5
million, with all values in between equally likely. (Again, your value is
$2.9 million.) Assuming your two rivals employ equilibrium bid
strategies, what is your equilibrium bid?- Private companies frequently approach your consulting firm to
undertake special projects and provide advice to management. As a
senior consultant, one of your jobs is to quote a price for these projects
based on an estimate of cost and firm resources (i.e., consultants
available to work on them). Your firm recognizes that it is competing
with other consulting firms for its potential clients’ business.
Over the last six months, you have bid on ten separate projects and
have won nine of them. You are establishing a reputation as someone
who really can bring in business. Some managers in the firm are worried,
however, about a shortage of resources (i.e., available consultants) to
complete these jobs. Is yours a “good” bidding record? Describe carefully
how you would make this assessment. - When a consumer searches on Google, related advertisements (so-called
sponsored links) appear next to the results. Firms bid for top placement
on the page for their links. In a Google ad auction, the firm making the
highest sealed bid wins the top position on the Web page and pays a
price equal to the second-highest bid. The next highest bidder wins the
second position (on the page just below the top position) and pays the
third-highest bid, and so on. The price paid for each position is
announced to all competing firms.
Suppose that firms 1, 2, 3, and 4 are bidding for twoadvertising
positions. On average, the top page position generates 5 clicks per
minute for each firm, while the second position generates only 3 clicks
per minute. Based on past experience, each firm estimates the economic
value (or net profit) it can expect to earn per click. For firms 1, 2, 3, and
4, these values are 50¢, 35¢, 30¢, and 15¢, respectively.
a. For the firm values listed above, is it an equilibrium for each firm to
bid its true value? Or could any of the firms do better by bidding
above or below its value? Explain briefly.
b. Alternatively, what if firm 3’s value is 20¢ (instead of 30¢)? Is truthful
bidding an equilibrium? - In many situations, a seller of an item entertains bids from a number of
buyers but allows one buyer to obtain the good by matchingthe highest
competing offer. Consider the owner of a house who must sell the
property immediately. These are only two potential buyers, one of whom
currently rents the house. The owner agrees to solicit a final price from
the outside buyer and allow the renter to match it if he wishes. All the
parties believe that the buyers’ values for the house are independent of
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