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Consider a 1st-Price Sealed-Bid auction: all players submit sealed bids, and the object is awarded to...

Consider a 1st-Price Sealed-Bid auction: all players submit sealed bids, and the object is awarded to the highest bidder who pays his/her bid. Is bidding one’s true willingnessto-pay still a dominant strategy?

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Answer #1

No, bidding one's true willingness is not a dominant strategy.

The first price auction is strategically equivalent to the Dutch auction. Unlike in the second-price and English auctions, it is not a dominant strategy in a first-price auction to bid your value. However, the theoretically optimal bidding strategy in both first-price and Dutch auctions is the same for any given bidder.

In a first-price sealed-bid auction, it is advantageous for a bidder to gather information about the competing bids before deciding on his own bid. Therefore, the "privacy" issue is essential in this auction format.

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