(Solution Document) A seller knows that there are two bidders for the object he is selling.


A seller knows that there are two bidders for the object he is selling. He believes that with probability 1/2, one has a buyer value of $10 and the other has a buyer value of $15 and, with probability 1/2, one has a buyer value of $7 and the other has a buyer value of $24. He knows that bidders will want to buy the object so long as they can get it for their buyer value or less. He sells it in an English auction with a reserve price which he must set before the auction starts. To maximize his expected profits, he should set the reserve price at $_____________

 







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