GA AUCTION STUDY MATERIAL
TEST BANK 2026 COMPREHENSIVE
QUESTIONS AND ACCURATE
SOLUTIONS VERIFIED
◉ what is the expected revenue of the auction? Answer: weighted
average of x outcomes (where the weights are the probabilities of each)
◉ how to calculate weighted average of expected revenue? Answer:
(winning bid x probability ) + (winning bid x probability)
◉ Another name for Vickey Auction? Answer: Second Price Auction
◉ what is a Vickrey Auction? Answer: sealed bid, bidders submit
without knowing the bids of other participants. Item awareded to highest
bidder, but winner pays second highest bid.
◉ why second price auctions? Answer: induces bidders to bid more
aggressively b/c their bid determines ONLY if they win, not the price
they pay
◉ optimal strategy for second price auction? Answer: bid exactly your
value
, ◉ First Priced Auction Answer: highest bidder wins at price equal to
highest bid. Must pay the amount you bid.
◉ Bid rotation scheme Answer: "rotisserie bidding" you wait your
TURN to win
◉ when is collusion more likely to occur? Answer: in small, frequent
auctions
◉ in what type of auctions is collusion more likely to occur? Answer:
more likely in ORAL as opposed to sealed bids
◉ common value auctions Answer: value is the same for each bidder
(think oil field) but no one knows what it is. You only have an estimate
◉ What auction is winning bad news? Answer: common value - means
your estimate was highest and most optimistic and > actual value
◉ how to avoid winners curse? Answer: bid as if everyone else thinks
the value is less than your estimate. Bid LESS agressively as # bidders
increase
◉ why do oral auctions return higher prices? Answer: b/c they release
more information
TEST BANK 2026 COMPREHENSIVE
QUESTIONS AND ACCURATE
SOLUTIONS VERIFIED
◉ what is the expected revenue of the auction? Answer: weighted
average of x outcomes (where the weights are the probabilities of each)
◉ how to calculate weighted average of expected revenue? Answer:
(winning bid x probability ) + (winning bid x probability)
◉ Another name for Vickey Auction? Answer: Second Price Auction
◉ what is a Vickrey Auction? Answer: sealed bid, bidders submit
without knowing the bids of other participants. Item awareded to highest
bidder, but winner pays second highest bid.
◉ why second price auctions? Answer: induces bidders to bid more
aggressively b/c their bid determines ONLY if they win, not the price
they pay
◉ optimal strategy for second price auction? Answer: bid exactly your
value
, ◉ First Priced Auction Answer: highest bidder wins at price equal to
highest bid. Must pay the amount you bid.
◉ Bid rotation scheme Answer: "rotisserie bidding" you wait your
TURN to win
◉ when is collusion more likely to occur? Answer: in small, frequent
auctions
◉ in what type of auctions is collusion more likely to occur? Answer:
more likely in ORAL as opposed to sealed bids
◉ common value auctions Answer: value is the same for each bidder
(think oil field) but no one knows what it is. You only have an estimate
◉ What auction is winning bad news? Answer: common value - means
your estimate was highest and most optimistic and > actual value
◉ how to avoid winners curse? Answer: bid as if everyone else thinks
the value is less than your estimate. Bid LESS agressively as # bidders
increase
◉ why do oral auctions return higher prices? Answer: b/c they release
more information
