wo bidders compete in a second price auction (i.e., the winning bidder pays the losing bidder’s bid, and the losing bidder does not pay anything). They submit sealed bids, and the one with the highest bid wins the contract and pays the other bidder’s bid. Each bidder i’s private valuation is vi and is distributed independently and uniformly between 0 and 50. 1. For any given bidder, prove that he has a dominant strategy bid and show what it is. 2. Assuming each bidder bids his dominant strategy noted above, if a bidder with vi = 40 wins, what price does he expect to pay?
wo bidders compete in a second price auction (i.e., the winning bidder pays the losing bidder’s bid, and the losing bidder does not pay anything). They submit sealed bids, and the one with the highest bid wins the contract and pays the other bidder’s bid. Each bidder i’s private valuation is vi and is distributed independently and uniformly between 0 and 50. 1. For any given bidder, prove that he has a dominant strategy bid and show what it is. 2. Assuming each bidder bids his dominant strategy noted above, if a bidder with vi = 40 wins, what price does he expect to pay?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two bidders compete in a second price auction (i.e., the winning bidder pays the losing
bidder’s bid, and the losing bidder does not pay anything). They submit sealed bids, and
the one with the highest bid wins the contract and pays the other bidder’s bid. Each bidder
i’s private valuation is vi and is distributed independently and uniformly between 0 and 50.
1. For any given bidder, prove that he has a dominant strategy bid and show what it is.
2. Assuming each bidder bids his dominant strategy noted above, if a bidder with vi = 40
wins, what price does he expect to pay?
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