Distinguish common-value and private-value auctions; provide examples of each. Distinguish descending-price (Dutch) auctions and ascending-price (English) auctions; provide examples of each.
You are developing a bidding strategy for an ascending-price sealed-bid auction of a crude-oil field worth between $1 million and $51 million to the seller. Because your extraction costs are lower, your value is 20 percent greater than the seller’s value. The seller faces transaction costs of conducting the sale and therefore will not accept an offer unless it exceeds his or her personal value. How much should you bid?