Which principle explains why an English auction is expected to generate higher revenue than a first-price auction in an affiliated values setting?
Explanation
In affiliated value auctions, the winner's curse encourages bidders to bid cautiously (shade their bids). The English auction reveals information that reduces this curse, leading bidders to bid more aggressively and thus generating higher expected revenue for the seller.
Other questions
According to the example on page 434, what is the expected value of a game where someone pays you in dollars the number that comes up on a single toss of a fair six-sided die?
What is the primary distinction between adverse selection and moral hazard?
In a first-price, sealed-bid auction with independent private values, what is the optimal bidding strategy for a risk-neutral bidder?
What is the 'winner's curse' in a common-values auction?
XYZ Company is launching a product that has a 10 percent chance of losing $4,000 and a 90 percent chance of earning $1,000. What are the expected profits of this venture?
A consumer who prefers a sure amount of $1,000 to a risky prospect with an expected value of $1,000 is described as:
Which of the following is an example of signaling in a labor market?
In a second-price, sealed-bid auction with independent private values, what is the dominant strategy for any bidder?
Under what condition does revenue equivalence hold, meaning English, second-price, first-price, and Dutch auctions all generate the same expected revenue for the auctioneer?
A risk-neutral manager is hiring a worker. Half of the workers in the market would accept a salary of $40,000, and half would accept $38,000. The first interviewee demands $40,000. The cost to interview another worker is $300. What is the expected benefit of interviewing another worker?
A consumer searching for a product finds a store selling it for a price of R. The consumer is indifferent between buying at price R and continuing to search. What is R called?
An insurance company offers a policy with a deductible, where the policyholder pays the first $200 of any claim. What problem is this deductible designed to mitigate?
What is the optimal bidding strategy for a bidder in an English auction with independent private values?
A firm's profit maximization rule under uncertainty, for a risk-neutral manager, is to produce where:
In the St. Petersburg Paradox described in 'Inside Business 12-1', why are individuals unwilling to pay the infinite expected monetary value of the gamble?
An apple juice producer faces a 30 percent chance of a market price of $2 and a 70 percent chance of a price of $1. The firm's cost is C = 200 + 0.0005Q squared. What is the profit-maximizing output?
What is the strategic equivalence between a Dutch auction and a first-price, sealed-bid auction based on?
A manager is bidding in a first-price, sealed-bid auction with 10 bidders. Bidders perceive valuations to be evenly distributed between $1,000 and $10,000. If the manager's own valuation is $2,500, what is her optimal bid?
How does an English auction help mitigate the winner's curse in an affiliated-values setting?
A situation where an insurance company cannot distinguish between high-risk and low-risk customers, leading to a pool of insured individuals with undesirable characteristics, is an example of:
Why do shareholders in a large, publicly traded company typically prefer their managers to behave in a risk-neutral manner?
One-Jet Airlines offers a $300 ticket with a Saturday stayover and a $600 ticket without a Saturday stayover. This pricing scheme is an example of what?
In Demonstration Problem 12-2, the manager is considering investing in a bologna project, a caviar project, a joint project, or a T-bill. Why should the manager not invest in the T-bill?
Which type of auction is characterized by the auctioneer beginning with a very high price and progressively lowering it until a bidder accepts?
How does an increase in the cost of consumer search affect the consumer's reservation price?
What is the variance for a project that has a 50 percent chance of yielding $10 and a 50 percent chance of yielding -$10?
If a firm selling a product in a competitive market must make its output decision before knowing the market price, what quantity should a risk-neutral manager produce?
The problem of 'insider trading' is an example of market failure due to:
Which of the following auction types is NOT strategically equivalent to the others in an independent private values setting?
A manager is considering two projects. Project A has an expected profit of $100,000 and a standard deviation of $20,000. Project B has an expected profit of $120,000 and a standard deviation of $30,000. Which project would a risk-neutral manager choose?
The tendency for individuals with the worst health to be the most likely to buy health insurance is an example of:
In which auction type does the winner pay the amount bid by the second-highest bidder?
An unemployed person has a hidden characteristic (e.g., work ethic) that an employer cannot observe. The employer offers a contract where payment is based on performance. This is an attempt to mitigate:
According to the chapter, why might chain stores be preferred by out-of-town visitors even if a local store offers a better product?
Sam is bidding in a Dutch auction with three bidders for an item he values at $2. Valuations are evenly distributed between $1 and $10. At what price should Sam declare his willingness to buy?
An auction environment where the true value of the item is the same for all bidders, but this common value is unknown, is called a(n):
A manager is offered two projects. Project 1 yields a certain profit of $900,000. Project 2 is risky with a 50-50 chance of yielding $2 million or zero. A risk-averse manager would:
Which of these is NOT one of the four basic types of auctions discussed in the chapter?
A self-selection device is a tool used for:
Which pricing strategy is most analogous to the optimal search rule for a consumer?
A project has a 10 percent chance of a -$4,000 outcome and a 90 percent chance of a $1,000 outcome. The expected profit is $500. What is the variance of the project's profit?
Why do firms offer money-back guarantees for their products?
In an English auction with affiliated value estimates, if a bidder sees many rivals drop out of the bidding at low prices, how should they adjust their own private estimate of the item's value?
What is the standard deviation of a project with a variance of 2,250,000?
An art auction where bidders' valuations depend on both their personal tastes and their different estimates of the painting's authenticity is an example of what kind of information structure?
According to the analysis of consumer search, a risk-neutral consumer should stop searching for a lower price when:
A firm that provides employees with full insurance against damages to company cars may find that employees are less careful. This is an example of:
To avoid the winner's curse in a common-values auction, a prudent manager should:
What is the primary reason that a firm in the FCC spectrum auction, as described in the 'Answering the Headline' section, dropped out of the bidding at $80 million even though its private estimate of the license's value was $85 million?