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Georgia Auction Licensing
Examination
โ Oral Auction / English Auction Answer: Bidders submit increasing bids until 1 bidder remains. Item goes to last remaining bidder โ what is the expected revenue of the auction? Answer: weighted average of x outcomes (where the weights are the probabilities of each) โ how to calculate weighted average of expected revenue? Answer: (winning bid x probability ) + (winning bid x probability) โ Another name for Vickey Auction? Answer: Second Price Auction โ what is a Vickrey Auction? Answer: sealed bid, bidders submit without knowing the bids of other participants. Item awareded to highest bidder, but winner pays second highest bid. โ why second price auctions? Answer: induces bidders to bid more aggressively b/c their bid determines ONLY if they win, not the price they pay โ optimal strategy for second price auction? Answer: bid exactly your value
โ First Priced Auction Answer: highest bidder wins at price equal to highest bid. Must pay the amount you bid. โ Bid rotation scheme Answer: "rotisserie bidding" you wait your TURN to win โ when is collusion more likely to occur? Answer: in small, frequent auctions โ in what type of auctions is collusion more likely to occur? Answer: more likely in ORAL as opposed to sealed bids โ common value auctions Answer: value is the same for each bidder (think oil field) but no one knows what it is. You only have an estimate โ What auction is winning bad news? Answer: common value - means your estimate was highest and most optimistic and > actual value โ how to avoid winners curse? Answer: bid as if everyone else thinks the value is less than your estimate. Bid LESS agressively as # bidders increase โ why do oral auctions return higher prices? Answer: b/c they release more information
c. A second-price auction is strategically equivalent to an English auction. CORRECT!!!!!!!!!!!! in an English auction, bidders bid up to their value with the highest-value bidder winning at a price near the second-highest value.] d. None of the above [One of the above answers is correct.] โ Suppose that five bidders with values of $500, $400, $300, $200, and $100 attend an oral auction. Which of these is closest to the winning price? a. $ b. $ c. $ d. $200 Answer: b. $400 [correct; as soon as the bidder with the value of $500 outbids the next highest bidder, the auction would end.] โ In the above auction, if the bidders with the first- and third-highest values ($500 and $300) collude, which of these is closest to the winning price? a. $ b. $ c. $
d. $200 Answer: b. $400 [correct; The second-highest value sets the price, so the collusion removing the third highest value from active competition would not affect the price.] c. $300 [despite the collusion, multiple bidders value the item more than $300, they would continue to compete, driving the price higher.] โ In a common-value auction, you should a. bid more aggressively the more competitors you face. b. bid less aggressively the more competitors you face. c. bid the same regardless of the number of competitors. d. bid more aggressively when others have better information than you. Answer: a. bid more aggressively the more competitors you face. [The more competitors you face, the more you should be wary of winning as this implies that every other bidder believes the item to be worth less than you do.] ----> b. bid less aggressively the more competitors you face. [correct; The more bidders there are, the more winning is potentially "bad news."]
c. Publically announce the name of each auction' s winner. [announcing the name of each winner allows the cartel to monitor cheating, thus helping the cartel.] d. Hold a second-price instead of a first price auction. [collusion is easier in second-price auctions.] โ You' re holding an auction to license a new technology that your company has developed. One of your assistants raises a concern that bidders' fear of the winner's curse may encourage them to shade their bids. How might you address this concern? a. Release your analyst' s positive scenario for the technology' s future profitability. b. Release your analyst' s negative scenario for the technology' s future profitability. c. Use an oral auction. d. All of the above Answer: d. All of the above [correct; in common value auctions, the auctioneer should reveal as much information as possible, both good and bad, to bidders so that they do not fear the winner's curse.]
โ Which of the following is true about the winner's curse? a. The winner's curse occurs primarily in private-value auctions. b. You successfully avoided the winner' s curse if you made money in the auction. c. The winner' s curse means that you bid incorrectly. d. The winner' s curse means that you lost money in an auction. Answer: a. The winner's curse occurs primarily in private-value auctions. [each bidder knows his or her value in private value auctions, so there is no winner's curse.] b. You successfully avoided the winner' s curse if you made money in the auction. [this is merely good luck. Avoiding the winner's curse implies making money on average, not just in a single auction.] c. The winner' s curse means that you bid incorrectly. [correct; the winner's curse happens when bids do not account for the fact that only the highest (and most optimistic) bid wins, and that the most optimistic estimate is likely to be wrong.]
