Question

SUBJECT: GAME THEORY

QUESTIONS

1. The winner's curse:

A) Can result in a private value auction, but usually occurs in a common value auction.

B) Can result in a common value auction, but usually occurs in a private value auction.

C) Only occurs in a common value auction

D) Only occurs in a private value auction.

2. In an English auction:

A) The winner’s curse is impossible.

B) The common value will be revealed to all.

C) Is only used for private value auctions.

D) None of the above.

3. Collusion is easier in

A) An English Auction

B) A Sealed bid Dutch Auction

C) A private value auction

D) A common value auction

4. A seller of a good with a common value, but that value is highly uncertain will prefer to use

A) An English auction mechanism

B) A Dutch auction mechanism

C) A second-price auction

D) None of the above

5. In marketing a signal is used to

A) Show that one product has higher quality than other products.

B) Show that one product has higher quality than some consumer might have suspected.

C) Show that a given product has attained the highest possible quality.

D) None of the above.

Answer 1

1)C........... because, Winners curse is a phenomenon that generally occur in common value auctions, where all bidders have the same value for an item but receive different private signals about this value and wherein the winner is the bidder with the most optimistic evaluation of the asset and therefore will tend to overestimate and overpay.  However, auctions with private value , winner's curse does not arise.

2)B..........An English auction is an open-outcry ascending dynamic auction. Unlike sealed-bid auctions, an English auction is "open" or fully transparent, as the identity of all bidders is disclosed to each other during the auction.It is used for common value auctions as well as private value auctions.In english auctions,winner's curse is a possibility in case of common value auctions.

3)A...... collusion is relatively easier in English auctions than sealed bid auctions.

4)C........Goods sold by auction are often traded later in secondary markets. Bidders for real estate, usedcars, artwork, Treasury bills, timber contracts, operating licenses,andantiques, for example, are all likely to consider the option of participating in a resale market when choosing their bids. These options will be particularly important when bidders are uncertain of the values they place on the objects for sale.

5)B