Difficulty: Hard
Category: Game Theory & Logic
Practice quant interview questions from top firms including Jane Street, Citadel, Two Sigma, DE Shaw, and other leading quantitative finance companies.
Topics: game-theory, auctions, revenue-equivalence, expected-value
Two identical items are being auctioned off. In Auction A, it's a standard first-price sealed-bid auction: the highest bidder wins the item and pays their bid. In Auction B, it's an all-pay sealed-bid auction: all bidders pay their bids, regardless of whether they win the item, and the highest bidder wins the item. Assume there are $n$ risk-neutral bidders in both auctions. What can you say about the expected revenue generated by Auction B compared to Auction A?
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