Question

You are a bidder in an independent private values auction, and you value the object at $5,500. Each bidder perceives that valuations are uniformly distributed between $1,000 and $9,000. Determine your optimal bidding strategy in a first-price, sealed-bid auction when the total number of bidders (including you) is:

a. 2 bidders.

Bid: $______


b. 10 bidders.

Bid: $______


c. 100 bidders.

Bid: $______

Answer 1

The formula to calculate the:

Bid = V - (V - L) / N

Where,

V = Bidder's own valuation

L = Lowest valuation

N = Number of bidders

a) When the total number of bidders (including you) is 2,

Bid = 5,500 - (5,500 - 1,000) / 2

      = $3,250

b) When the total number of bidders (including you) is 10,

Bid = 5,500 - (5,500 - 1,000) / 10

      = $5,050

c) When the total number of bidders (including you) is 100,

Bid = 5,500 - (5,500 - 1,000) / 100

      = $5,455