Question

You are a bidder in an independent private values auction. Each bidder perceives that valuations are evenly distributed between $100 and $1,000. If there is a total of three bidders and your own valuation of the item is $900, describe your strategy (how you would behave) and your optimal bidding in:

a. A first-price, sealed-bid auction.

b. A Dutch auction.

c. A second-price, sealed-bid auction.

d. An English auction.

Explain and/or show your work.

Answer 1

Answer

In a First price sealed bid auction, my bidding strategy would be to go with $ 1000 as this is like a blind auction. As all 3 of us will submit our bids simultaneously, none of us know the bid of other participants. The highest bidder pays the price they submitted. When I go with $ 1000, I should win the bid in this strategy.
In Dutch auction, the price is reduced until a buyer is found. Hence, I will start with $1000. As 3 of us are there, I get every 3rd opportunity to place my position and I’ll go to the value that is close to $100.
In a Second price sealed bid auction, my bidding strategy would be to go with $ 800 or $ 900 as the second highest bidder is awarded the object.
In English auction, the Bidding starts with a low price, and is raised incrementally until the close of auction or no further bids are received. Always, the seller sets the bare minimum price below which the items are not sold. My bidding strategy in this case will be to start with $ 100.