Deck 16: Market Institutions and Auctions

Question 1

An auction in which bidders submit sealed bids, and the winner is the highest bidder, who pays a price equal to his or her bid, is called a first-price sealed-bid auction.

Answer 1

True

Question 2

Collusion among firms bidding in an auction is called auction distortion.

Answer 2

False

Question 3

The Rth order statistic of a sample is the Rth smallest value of the sample.

Answer 3

True

Question 4

A Dutch auction is an auction in which the auctioneer starts the bidding at a certain level and people raise that bid until no one wishes to increase her or his bid any further. The last person to bid wins the good at a price equal to that bid.

Question 5

A sealed-bid auction is an auction in which bidders enter their bids privately and the loser is that bidder whose bid is highest.

Question 6

To get the experimental volunteers to act like real buyers and sellers, Smith and Plott had to provide

A) monetary incentives
B) pleading and begging
C) voluminous written instructions

Question 7

The Smith experiments demonstrated that the market institution that best approximated efficiency was the

A) one-sided oral auction in which only the sellers are active
B) double oral auction
C) one-sided oral auction in which only the buyers are active

Question 8

Because the researchers in the Smith and Plott experiments gave subjects monetary incentives, we can describe the resulting demand and supply curves as

A) invalid
B) induced
C) deduced

Question 9

Under the structure of the Smith and Plott experiment, the payoff to a buyer is the ___________ surplus on the units she or he purchases.

A) producer
B) equilibrium
C) consumer

Question 10

A private value auction is an auction in which each person has a particular and possibly different value for the good being auctioned.

Question 11

A double oral auction is an auction is an auction in which ______________________ can make bids or asks as the auction progresses.

A) both buyers and sellers
B) only buyers
C) only sellers

Question 12

An auction of the type used in country or art auctions is called a(n)

A) Dutch auction
B) English auction
C) American auction

Question 13

A common value auction is an auction in which one objectively true value for a good exists, but information about that value is distributed across the population.

Question 14

Imagine a double oral auction for a gallon of jam. The buyer bids $4. The seller asks $7. What is the most likely next step?

A) The parties make a contract for the jam
B) The buyer bids again with an amount greater than $4 and less than $7
C) The seller immediately drops the asking price to $4

Question 15

The only difference among the three Smith and Plott experiments is the

A) induced demand curves of the subjects
B) market institution used
C) induced supply curves of the subjects

Question 16

The Smith and Plott experiments used

A) a double oral auction
B) one-sided oral auctions
C) Both answers are correct

Question 17

An outcome of a common value auction in which the winning bidder bids more than the true expected value of the good he or she wins is called the winner's curse.

Question 18

One-sided oral auctions are market institutions in which buyers can accept or reject offers from sellers but cannot make counteroffers.

Question 19

An auction in which everyone submits a sealed bid and the winner is the highest bidder, but the winner pays a price equal to the second-highest bidder's price is known as "lucky person" auction.

Question 20

Under the structure of the Smith and Plott experiment, the payoff to a seller is the ___________ surplus on the units sold.

A) consumer
B) equilibrium
C) producer

Question 21

To avoid the winner's curse, a bidder needs to know the

A) largest estimate of value any buyer might receive
B) total wealth of each competing bidder
C) Both answers are correct

Question 22

In a first-price sealed-bid auction, how many bidders would you predict will bid above their private values?

A) zero
B) one third
C) all

Question 23

Under what conditions does the Revenue Equivalence Theorem not hold true?

Question 24

Are the buyers or the sellers the active agents in a one-sided oral auction?

Question 25

The resulting price of an English auction will be _______________ the resulting price of a second-price sealed-bid auction.

A) greater than
B) equal to
C) less than

Question 26

Summarize the procedure for beating the winner's curse in a common value auction.

Question 27

A sealed-bid auction is an auction in which bidders enter their bids privately and the winner is that bidder whose bid is

A) highest
B) lowest
C) zero

Question 28

What is a strategy in a private value auction? Describe typical strategies for English and Dutch auctions.

Question 29

In a common value auction, the equilibrium bid of bidders in the auction will be

A) zero
B) the socially optimal value
C) the estimated mean of the distribution of estimates

Question 30

Which of the following must be true for the Revenue Equivalence Theorem to hold?

A) The payoff of an auction is a function only of the bids made
B) Bidders care about both monetary and nonmonetary rewards
C) Bidders are not identical and draw their values from different intervals

Question 31

A second-price sealed-bid auction is an auction in which everyone submits a sealed bid and the winner is the __________ bidder, but the winner pays a price equal to the second-highest bidder's price.

A) lowest
B) highest
C) richest

Question 32

In a private value auction, one player's private value is known to

A) only that player
B) all the bidders
C) only the seller

Question 33

Collusion among firms bidding in an auction is known as

A) the winners' curse
B) bid rigging
C) an uncommon value auction

Question 34

In a common value auction, you can get an unbiased estimate of the true value of a good by estimating the ____________ of the uniform distribution of estimates.

A) median
B) mean
C) variance

Question 35

As the number of bidders in a common value auction increases, the highest estimate will ______________ the true upper limit.

A) diverge from
B) equal one half of
C) converge to

Question 36

In a first-price sealed-bid auction, the optimal bid will be _______________ the expected value of the second-highest bidder.

A) equal to
B) less than
C) greater than

Question 37

The resulting price of a Dutch auction will be _______________ the resulting price of a first-price sealed-bid auction.

A) equal to
B) greater than
C) less than

Question 38

The bidding strategy and the outcome of an English auction is identical to those of a

A) first-price sealed-bid auction
B) second-price sealed-bid auction
C) Dutch auction

Question 39

State the Revenue Equivalence Theorem.

Question 40

An auction in which the auctioneer sets the price arbitrarily high and then systematically reduces it until one bidder stops the falling price and buys the good is called a(n)

A) German auction
B) English auction
C) Dutch auction