3. (15 points) Alex and Betty are competing in a first-price, sealed-bid auction

Question

3. (15 points) Alex and Betty are competing in a first-price, sealed-bid auction. It is common knowledge that Alex values the object at v $10 and Betty values the object at v2- $6. The seller has announced it will donate all of the revenue generated at the auction to a charity that both bidders like. Let a [0,1) denote how much the bidders value the charity relative to their own surplus. If bidder i wins, his or her total payoff is vi-bi + bi. If bidder i loses, his or her payoff is ab-i, ie. a multiplied by the amount the other bidder has to pay. Assume that Alex wins in the event of a tie. (a) (2 points) True or False? Because a

Explanation / Answer

False , Because alpha is greater then 1, the bidders would always want to pay more than they have to in order to win..

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