Firm Z Is One of 4 Bidders, Each with a Value

question 12

Multiple Choice

Firm Z is one of 4 bidders, each with a value independently drawn from the range $20,000 to $60,000 with all values in between being equally likely. In a sealed-bid auction, Firm Z's equilibrium bidding strategy is:

• A) b_i = (.25)(40,000) + .75v_i
• B) b_i = (.2)(20,000) + .8v_i
• C) b_i = (.5)(40,000) + .5v_i
• D) b_i = (.25)(20,000) + .75v_i
• E) b_i = (.75)(20,000) + .25v_i

---

Definitions:

Oligopoly

A market structure dominated by a few large firms, resulting in limited competition and often leading to higher prices for consumers.

Price Searchers

Firms or individuals who determine the price of their goods or services based on market conditions, often with some degree of market power.

Oligopolistic Industry

An industry structure characterized by a small number of firms dominating the market, often leading to strategic interactions in setting prices and output.

Collude

When two or more firms or entities agree to work together, typically secretly and illegally, to fix prices, rig bids, or form a monopoly to eliminate competition and increase profits.