A buyer has value vb for a potential acquisition and believes the sellers reservation price has the cumulative probability distribution F(v) The buyer chooses P to maximize its expected profit b (vb P)Pr(P accepted) (vb P)F(P) Find the buyers marginal profit and set it equal to zero Show that the buyers optimal price satisfies P vb F(P) f(p), where f(v) dF(v) dv is the associated density function The buyer shades down its value in making its optimal bid

Question: A buyer has value vb for a potential acquisition and believes the sellers reservation price has the cumulative probability distribution F(v). The buyer chooses P

A buyer has value vb for a potential acquisition and believes the seller’s reservation price has the cumulative probability F(v). The buyer chooses P to maximize its expected profit:
πb = (vb - P)Pr(P accepted) = (vb - P)F(P).
Find the buyer’s marginal profit and set it equal to zero. Show that the buyer’s optimal price satisfies P = vb - F(P)/f(p), where f(v) = dF(v)/dv is the associated density function. The buyer shades down its value in making its optimal bid.

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