There are five risk-neutral bidders, each having a private value that is independently drawn from the range $60 thousand to $120 thousand with all values in between equally likely. The respective expected revenues (in $ thousands) from the English and sealed-bid auctions are: A) E(P_E) = $100 and E(P_S) = $110. B) E(P_E) = E(P_S) = $96. C) E(P_E) = E(P_S) = $100. D) E(P_E) = $96 and E(P_S) = $108. E) E(P_E) = E(P_S) = $110.

Question

Quizplus · Accepted Answer

In both English and sealed-bid auctions with risk-neutral bidders and independent private values uniformly distributed, the expected revenue is the same due to the revenue equivalence theorem. Given the uniform distribution of values from $60,000 to $120,000, the average value, which is also the expected revenue, is the midpoint of this range, which is $90,000. However, with competition among bidders, the expected revenue tends to increase. The correct answer should reflect equal expected revenues for both auction types, but none of the provided options accurately reflects the theoretical expected revenue based on the given distribution. Option C suggests equal expected revenues for both auction types, aligning with the revenue equivalence principle, despite the numerical values not matching the theoretical expectation from the provided distribution range.

There Are Five Risk-Neutral Bidders, Each Having a Private Value