1. Economics 100C: April 8, 2010
April 8, 2010

2. The Revenue Equivalence Theorem asserts that a seller will get the same revenue whether he sells an object by a first price or a second price sealed bid auction.
True
False

3. Why is it false?
The revenue equivalence theorem states that “in a private values auction where the distributions of buyer values are continuous and independent, the EXPECTED revenue from the two types of auction will be the same.
Realized outcomes are not the same as expected outcomes.

4. Common Value auctions The key to profitable bidding is to
consider not the unconditional expecteed value of the object, but the expected value conditional on your bid being the highest one.

5. Was our Montana auction a common value auction or a private values auction?

6. Answer
This is a common values auction. The payment to the buyer is the same no matter who wins the auction.
The only difference between the bidders is that they have different prior information.
The person who wins the auction is someone who has an unusually high estimate of the population.

7. The population of West Virginia is between:
1,000,000-1,500,000
1,500,000-2,000,000
2,000,000-2,500,000
2,500,000-3,000,000
3,000,000+