See attached images for question context. Please answer part (b) Question: In real-world FCC auctions, there are other complications. We consider two of them below.(a) Bidder 1 is financially constrained (while the two other bidders are not). Suppose bidder 1's valuations for the two objects are 50 and 60; respectively, but his total budget is 100. What should this bidder do in the auction (according to the auction rule for Question 1 - question 1: What should a bidder do if his valuations for the two objects are 50 and 60?); respectively? Explain. (b) Bidders do not have budget constraints. Bidder 1 is special. He values the two objects individually at 50 and 85; respectively. But this bidder's valuation for the bundle of the two objects is 140 (which is greater than the sum of 50 and 85). That is to say, if bidder 1 gets only object 1 and the price is 30, his net payoff will be 50 30 = 20; but if he gets both objects at prices 30 and 20, his net payoff will be 140 - 30 - 20 = 90. The greater valuation for the bundle may come from economies of scales, market power, etc. What should bidder 1 do in the auction (according to the auction rule for Question 1. Question 1: What should a bidder do if his valuations for the two objects are 50 and 60)? Explain. The Federal Communications Commission (FCC) organizes multiple auctions of airwavelicenses each year that generate billions of dollars in revenue. The following is a simplifiedversion of an FCC auction. Consider three bidders bidding for two objects (for example, anobject could be a license that covers Manhattan, and a bidder can be Comcast). Let vijbe bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows itsvaluationVijbut other bidders only know that vij is drawn uniformly from [0, 100]. If bidderi wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win anyobject, his payoff is 0.The auction proceeds as follows. The initial prices are zero for both objects. All bidders sitin front of their computers and observe the prices for both items in real time. Initially allbidders are invited to enter the bidding race for both items. At any moment in time, eachbidder has the option to withdraw from the bidding race for either object or both. If a bidderwithdraws from the bidding for one object, he can no longer get back to the bidding for thatobject, but he can stay in the bidding race for the other object if he hasn't withdrawn fromit previously. The price for an object increase continuously over time as long as there are'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwavelicenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auctiondesigns have been adopted by many other countries in the world, and the auctions rules have been updatedfrom time to time. Microeconomic theorists are involved in both auction designs and actual bidding. two or three bidders in the race for that object. The rate of price increase is 1; that is tosay, the price increases to x if x units of time has passed, where x is a real number. Theprice for an object stops increasing if there is at most one bidder left for the bidding race forthe object, and the price will stay at that level for the rest of the game; we say the price islocked in this case. (the price for the other object will continue to increase if more than onebidder stays in the bidding race for that object). The auction ends as soon as both pricesstop increasing (i.e., at most one bidder remains in the bidding race for each object). Anobject is sold to the bidder (if any) who remains in the bidding race for that object at thelocked price.

Auctions are effective ways of allocating resources, as they assign goods or services to those who…

Answered: (b) Bidders do not have budget…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.11P

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See attached images for question context.

Please answer part (b)

Question: In real-world FCC auctions, there are other complications. We consider two of them below.
(a) Bidder 1 is financially constrained (while the two other bidders are not). Suppose bidder 1's valuations for the two objects are 50 and 60; respectively, but his total budget is 100. What should this bidder do in the auction (according to the auction rule for Question 1 - question 1: What should a bidder do if his valuations for the two objects are 50 and 60?); respectively? Explain.

(b) Bidders do not have budget constraints. Bidder 1 is special. He values the two objects individually at 50 and 85; respectively. But this bidder's valuation for the bundle of the two objects is 140 (which is greater than the sum of 50 and 85). That is to say, if bidder 1 gets only object 1 and the price is 30, his net payoff will be 50 30 = 20; but if he gets both objects at prices 30 and 20, his net payoff will be 140 - 30 - 20 = 90. The greater valuation for the bundle may come from economies of scales, market power, etc. What should bidder 1 do in the auction (according to the auction rule for Question 1. Question 1: What should a bidder do if his valuations for the two objects are 50 and 60)? Explain.

The Federal Communications Commission (FCC) organizes multiple auctions of airwave
licenses each year that generate billions of dollars in revenue. The following is a simplified
version of an FCC auction. Consider three bidders bidding for two objects (for example, an
object could be a license that covers Manhattan, and a bidder can be Comcast). Let vij
be bidder i's valuation for object j, where i E {1,2,3} and j e {1,2}. Bidder i knows its
valuation
Vij
but other bidders only know that vij is drawn uniformly from [0, 100]. If bidder
i wins object 1 at price p1 and object 2 at price p2, bidder i's payoff is v;1 – Pi + Vi2 – P2.
If bidder i wins only object j at price p;, his payoff is vij – pj. If bidder i does not win any
object, his payoff is 0.
The auction proceeds as follows. The initial prices are zero for both objects. All bidders sit
in front of their computers and observe the prices for both items in real time. Initially all
bidders are invited to enter the bidding race for both items. At any moment in time, each
bidder has the option to withdraw from the bidding race for either object or both. If a bidder
withdraws from the bidding for one object, he can no longer get back to the bidding for that
object, but he can stay in the bidding race for the other object if he hasn't withdrawn from
it previously. The price for an object increase continuously over time as long as there are
'FYI. Early this year, FCC organized its 107th auction, where 57 bidders compete for 5,684 airwave
licenses for 5G networks. The total revenue from auction 107 is over 80 billion dollars. FCC's auction
designs have been adopted by many other countries in the world, and the auctions rules have been updated
from time to time. Microeconomic theorists are involved in both auction designs and actual bidding.

two or three bidders in the race for that object. The rate of price increase is 1; that is to
say, the price increases to x if x units of time has passed, where x is a real number. The
price for an object stops increasing if there is at most one bidder left for the bidding race for
the object, and the price will stay at that level for the rest of the game; we say the price is
locked in this case. (the price for the other object will continue to increase if more than one
bidder stays in the bidding race for that object). The auction ends as soon as both prices
stop increasing (i.e., at most one bidder remains in the bidding race for each object). An
object is sold to the bidder (if any) who remains in the bidding race for that object at the
locked price.

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