Land Shark is investigating the sensitivity of its model to the assumptions it made on the random variables. In particular, Land Shark is interested in modeling how it generates its competitor’s bid percentages.
a. Rather than generating a competitor’s bid percentage by resampling from the 72 observed bid amounts, use ASP to fit an appropriate distribution using these 72 data points and rerun the simulation model. In addition to considering the fit of the distribution to the data, when selecting a distribution, keep in mind the range of bid amounts that would be reasonable.
b. For Land Shark’s bid amount of $1,250,000, how does the estimate of its probability of winning the auction differ from the model developed in Section 11.3?
c. Comment on the implications of modeling random variables and which approach you feel is more appropriate in this case.