Question

You are one of five risk-neutral bidders participating in an independent private values auction. Each bidder perceives that all other bidders’ valuations for the item are evenly distributed between $20,000 and $60,000. For each of the following auction types, determine your optimal bidding strategy if you value the item at $48,000. a. First-price, sealed-bid auction. Bid $20,000. Bid $42,400. Bid $60,000. Bid $48,000. b. Dutch auction. Let the auctioneer continue to lower the price until it reaches $60,000, and then yell "Mine!". Let the auctioneer continue to lower the price until it reaches $48,000, and then yell "Mine!". Let the auctioneer continue to lower the price until it reaches $20,000, and then yell "Mine!". Let the auctioneer continue to lower the price until it reaches $42,400, and then yell "Mine!". c. Second-price, sealed-bid auction. Bid $48,000. Bid $20,000. Bid $60,000. Bid $42,400. d. English auction. Remain active until the price exceeds $42,400, and then drop out. Remain active until the price exceeds $60,000, and then drop out. Remain active until the price exceeds $48,000, and then drop out. Remain active until the price exceeds $20,000, and then drop out.

Answer 1

Optimal bidding strategies differ by auction type: in a first-price auction, bid below $48,000; in a Dutch auction, bid when price reaches $48,000; in a second-price auction, bid your actual valuation of $48,000; and in an English auction, remain active until the price exceeds $48,000.

Step-by-step explanation:

When participating in different types of auctions with independent private values, a bidder who values an item at $48,000 should strategize their bid based on the auction format:

First-price, sealed-bid auction: The bidder should bid lower than their actual valuation to increase the margin of winning the auction while still gaining a surplus. The optimal bid would be somewhere between the lowest valuation and your actual valuation, but not the full $48,000 to avoid overpaying in case others bid lower. A strategic bid might be at or near $42,400.

Dutch auction: The bidder should try to claim the item right before it reaches their valuation to ensure they get it without overpaying. If the bidder bids as soon as the price drops to $48,000, they ensure getting the item for their valuation price, avoiding the risk of someone else claiming it first.

Second-price, sealed-bid auction: Here, the bidder should bid their true valuation of $48,000, because if they win, they will pay the second-highest bid, which maximizes their surplus without the risk of paying more than their valuation.

English auction: The bidder should remain active until the price exceeds their valuation of $48,000 and then drop out. This allows for the possibility of winning at a price lower than their valuation but avoids overpaying.

To sum up, the optimal strategies are to bid strategically lower than your actual valuation in a first-price auction, bid at your valuation in a second-price auction, and bid up to your valuation in an English or Dutch auction.

Answer 2

Answer:

536,879

Step-by-step explanation:

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