Download Auctions Exam Questions with 100% Correct Answers | Verified | Updated 2024 and more Exams Advanced Education in PDF only on Docsity! Auctions Exam Questions with 100% Correct Answers | Verified | Updated 2024 Difference between bargaining and auctions - Correct Answer--Bargaining: one buyer; one seller; one deal -Auctions: one seller; many (potential buyers); one deal OR one buyer; many (potential buyers); one deal Types of auctions - Correct Answer-English Dutch First price, sealed bid auctions Second price, sealed bid auctions English auctions - Correct Answer--Ascending -Open outcry by bidders until only one bidder is left -Ej: wine, art, most internet auctions Dutch auctions - Correct Answer--Descending -Auctioneer calls out a high price and methodically drops until someone says 'mine' -Ej: Dutch flower markets First price, sealed bid auctions (1st price) - Correct Answer--bidders submit sealed bids -winner is the highest bid -the amount paid is the highest bid -Ej: Buyers' auctions - especially government procurement Second price, sealed bid auctions (2nd price) - Correct Answer--bidders submit sealed bids -winner is the highest bid -the amount paid is the second highest bid -Ej: if the 2 top bids are Smith bidding 50 and Brown bidding 45, Smith gets the object and pays 45 -Ej: stamp auctions, some internet auctions What does first price, sealed bid cause bidders to do? - Correct Answer-cause bidders to bid closer to actual value Why don't auctions work in IPO's? - Correct Answer-prices are too variable so faith/trust in markets go down Why are prices variable/unpredictable in IPO? - Correct Answer-3 reasons push price up: 1)short selling is constrained 2)company wants to look good - overvalue stock 3)investment bank retains some of the shares after offering- in their interest to overprice In securities markets, what did Dutch Auctions refer to? - Correct Answer-situations with multiple units or sealed bids or offers Key concepts in economic analysis of auctions - Correct Answer-1) type of value 2) risk- neutrality 3) Nash Equilibrium Risk neutrality - Correct Answer-how a person "should act" based in expected payoff/ outcome, a risk-neutral person cares only about the expected ("average") outcome Type of value - Correct Answer--What is the object worth to me? -Do I know this before the bidding starts? -Is this value dependent on/related to the value of others? -Will I learn anything about this value in the course of bidding? Nash Equilibrium - Correct Answer--no one is better off by changing, state of balance, state of balance ---if no one will benefit from deviating from their planned strategy ---if formulating your strategy based on what you think others will do won't change your original strategy Value of object during an auction - Correct Answer-the value of the object is what the object is worth to the bidder -value is often at least partially specific to the bidder (I might value a painting more than anyone else) -I don't know everyone else's values -I might not even know everything about my own values (if I plan to resell the painting, what will my reservation price be?) -value is generally a random variable -the collection of all bidders' values is a set of random variables that might be correlated -usually we know something about the distribution of these values -the knowledge of the distribution of bidder valuations helps us formulate our strategy Sources and types of value - Correct Answer--independent private values -affiliated values -common values Independent private value - Correct Answer-I know my value and its not related to the valuation of any other bidders. Other people's bids and the final price tell me nothing that influences my personal value
