You hold an auction on ebay and expect two bidders to show


You hold an auction on eBay and expect two bidders to show up. You estimate that each bidder has a value of either $5 or $8 for the item, and you attach probabilities to each value of 50%. Your own value for the item is zero. You can set a reserve price, a price below which you will not accept bids for the item. What reserve price should you set, and what is your expected revenue from auctioning the item with a reserve price?

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Business Economics: You hold an auction on ebay and expect two bidders to show
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