The Philadelphia Eagles of the National Football League build a stadium. One revenue source during the construction of the stadium is a personal seat license (PSL), a one- time, up- front payment charged to season ticket holders before the stadium is built. It gives the buyer the right to purchase tickets for a particular seat. The Eagles are uncertain about demand for seats in the new stadium. They have selected three price points for PSLs ($6,000, $7,000, and $8,000). Management also has estimated that demand for PSLs could be low, medium, or high. Their beliefs are reflected in this table:

Some of the stadium funding is provided by the city of Philadelphia. Because Eagles fans view PSLs as an attempt to take away consumer surplus, they resent them and have put pressure on the city government to limit their use. Therefore, the city has set a target of 25,000 seats assigned to PSLs. If the Eagles sell fewer than 25,000 PSLs, the city will grant the team a tax benefit of $10/seat for each seat under 25,000. If the Eagles sell 25,000 or more PSLs, no tax break will be given. A consulting group has told the Eagles that the team is better off using a modified Dutch auction to sell the PSLs. The group has estimated the cost of running the auction at an additional $5.1 million. Eagle's management has come to you for help. The managers want to know whether they should use an auction and what the expected benefits will be. What will you tell them?

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Low Demand Medium Demand High Demand Price Probability 0.4 Probability 0.35 Prbability 0.25 $6,000 24,500 PSLs sold 28,000 PSLs sold 40,000 PSLs sold $7,000 21,500 PSLs sold 24,000 PSLs sold32,000 PSLs sold $8,000 17,500 PSLs sold 22,000 PSLs sold 25,000 PSLs sold