An item is being sold in a first-price sealed-bid auction. There are n > 1 risk...

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An item is being sold in a first-price sealed-bid auction. There are n > 1 risk neutral bidders. Bidders have private values. Suppose that, prior to the auction, the seller can invest in advertising that affects bidders' private values in a predictable way. If the seller spends a > 0 on advertising, then this results in bidders' private values being independent and uniformly distributed on an interval [0, 7], where = a. The seller is risk neutral and there are no other costs involved in auctioning the item. a) Explain and derive the optimal advertising expenditure for the seller. b) How would the results from a) change if the item were instead sold using a second-price auction? An item is being sold in a first-price sealed-bid auction. There are n > 1 risk neutral bidders. Bidders have private values. Suppose that, prior to the auction, the seller can invest in advertising that affects bidders' private values in a predictable way. If the seller spends a > 0 on advertising, then this results in bidders' private values being independent and uniformly distributed on an interval [0, 7], where = a. The seller is risk neutral and there are no other costs involved in auctioning the item. a) Explain and derive the optimal advertising expenditure for the seller. b) How would the results from a) change if the item were instead sold using a second-price auction?

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a Optimal Advertising Expenditure in a FirstPrice SealedBid Auction In this scenario the seller can invest in advertising to influence the bidders pri... View the full answer