After the passage of several weeks during which Repo never got more than one high bid for
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(a) The economist continued. “If Repo sticks to its guns and refuses to sell at any price below $R, then even if Arnie, Barney, and Carny collude, the best they can do is for each to bid $R when they value a car at $H and to bid nothing when they value it at $L.” If they follow this strategy, the probability that Repo can sell a given car for $R is _______, so Repo’s expected profit will be _______.
(b) Setting a reserve price that is just slightly below $H and destroying cars for which it gets no bid will be more profitable for Repo than setting no reservation price if the ratio H/L is greater than _______and less profitable if H/L is less than _______.
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