2. Pat is selling his house in a second price sealed bid auction. That is, a written bid is submitted, the highest bid wins the item but the price paid is the second-highest bid. There are two bidders, Alex and Bert, who have valuations of £1.1lm and £1.2m respectively. a) Show that there is an equilibrium where each bidder bids his or her valuation. b) What price is the house is sold for?

2. Pat is selling his house in a second price sealed bid auction. That is, a written bid is submitted, the highest bid wins the item but the price paid is the second-highest bid. There are two bidders, Alex and Bert, who have valuations of £1.1lm and £1.2m respectively. a) Show that there is an equilibrium where each bidder bids his or her valuation. b) What price is the house is sold for?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 1MC

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10 Use the expected value information to illustrate how having more bidders in an oral auction will likely result in a higher winning bid.