In this problem we will ask how much a seller can expect to receive for his object in a second-price, sealed-bid auction. Assume that all bidders have independent, private values vi which are either 0 or 1. The probability of 0 and 1 are both 1/2.

(a) Suppose there are two bidders. Then there are four possible pairs of their values (v1, v2): (0, 0), (1, 0), (0, 1), and (1, 1). Each pair of values has probability 1/4. Show that the seller’s expected revenue is 1/4. (Assume that if there is a tie at a bid of x for the highest bid the winner is selected at random from among the highest bidders and the price is x.)

(b) What is the seller’s expected revenue if there are three bidders?

Answer rating: 100% (QA)

Both bidder have independent rules v e 01 each with probability ... View the full answer