Suppose Firm? 1, Firm? 2, and Firm 3 are the only three firms interested in a lot at the corner of First Street and Glendon Way. The lot is being auctioned by a? second-price sealed-bid auction. Suppose Firm? 1's value of the lot is ?$10,500?, Firm? 2's value is ?$11,000?, and Firm? 3's is ?$19,000. Each? bidder's consumer surplus is CS=v1 - p.
if it wins the auction and 0 if it loses. The values are private. What is each? bidder's optimal? bid? Who wins the? auction, and what price does that firm? pay? Firm? 1's optimal bid is ?$___________ , Firm? 2's optimal bid is ?$__________, and Firm? 3's is ?$_________. ?(Enter your responses as whole? numbers.)
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Solution: In third Price Sealed Bid Auctions, the object is sold to the HIGHEST bidder at the third HIGHEST Bid price. |
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In this type of auction, it is always better to bid at the bidder's own valuation of the object as it will ensure that there are no negative returns. |
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Thus, for the lot, Firm 1's Optimal Bid would be its valuation of the lot, i.e., $10,500 |
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Firm 2's Optimal Bid would be its valuation of the lot, i.e., $11,000 |
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Firm 3's Optimal Bid would be its valuation of the lot, i.e., $19,000
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