Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 10

You are considering placing a bid over the Internet in an eBay auction for a rare oriental rug. You are not a dealer in these rugs, and you do not have a precise estimate of its market value. You do not want to buy the rug for more than its market value. However, you would like to buy it if you can get it below the market value. You expect that many people will participate in the auction (including rug dealers). eBay asks that you give them the maximum bid you are willing to make. They will start low; whenever you are outbid, they will raise your bid just enough to lead the auction. eBay quits bidding on your behalf once your maximum price is reached. Your best guess at the market value is $1,000. What should you bid