Question

Question 4

A. Show that a dominant bidding strategy in an English auction is to continue bidding as long as the price in the auction is less than your true value of the good.

B. Suppose that there are six bidders in an English auction for an antique 1950s Vaporizer. Each has his or her own private value for the vintage machine. In ascending order, these values are $50, $60, $70, $80, $90, and $100.

a. What will be the winning bid?

b. What will be the winning bid if the highest three bidders collude?

Answer 1

A. An auction where bidders bid openly against each other in attempts to purchase property, and the bids continue to increase (by increments) — selling to the highest bidder — is known as an English auction.

In an English auction, bidders do not bid over their own valuation, and the winner of the auction is the bidder with the highest valuation who calls his/her bid first. The price he/she will pay for the item is equal to the valuation of the bidder who has the second highest valuation.

In an English auction, bidding starts at a low price and is raised incrementally as progressively higher bids are solicited, until no higher bids are solicited. So the dominant strategy in an English auction is to continue bidding as long as the price in the auction is less than your true value of the good.

B. There are six bidders in an English auction. Their private value for the antique is $50, $60, $70, $80, $90 and $100.

Let the six bidders be A, B, C, D, E and F respectively.

a.The winning bid will be submitted by F. The price F will pay for the antique will be equal to the private value of the antique for E. The winning bid will be $90.

b. If the three highest bidders(D, E and F) collude the winning bid will be the private value for the antique for C. The winning bid will be $70.