A second price auction is one in which the object fr sale is sold to the...

A second price auction is one in which the object fr sale is sold to the highest bidder at the second highest bidder’s price. In an independent private values auction, show that it is a dominant strategy for a bidder to bid his true valuation.

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Expert Solution

Auction theory was proposed by William Vicrey in 1961.

Sealed Bid Auction is very well known type of auction. In this a bidder submits his bid in the sealed envelope before deadline, without knowledge of opponent party. After deadline, the auctioneer declares the name of winning bidder.

There are two types of Sealed Bid Auction-

First Price Auction - The highest bidder wins, and pays the amount.

Second Price Auction - The highest bidder wins, and pays the amount bid by the second-highest bidder.

Independent private values auction

Sincere bidding (i.e., the truthful bidding of one’s own valuation) is a Nash equilibrium of the sealed-bid second-price auction, under private values. Sincere bidding is a weakly dominant strategy for each bidder; and sincere bidding by all bidders is the unique outcome of elimination of weakly dominated strategies. These facts make the sincere bidding equilibrium an especially compelling outcome of the second-price auction.

Rahul Sunny answered 1 year ago

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