Tuesday 24 June 2014
You hold an auction on eBay and expect two bidders
You hold an auction on eBay and expect two bidders to show up. You
estimate that each bidder has a value of either $5 or $8 for the item,
and you attach probabilities to each value of 50%. Your own value for
the item is zero. You can set a reserve price, a price below which you
will not accept bids for the item. What reserve price should you set,
and what is your expected revenue from auctioning the item with a
reserve price?
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