Question

Suppose that we have two copies of Managerial Economics Textbook to sell to three students. How can we use a sealed-bid auction that will guarantee that the bidders with the two highest values get the books?

Answer 1

Answer

A sealed-bid auction is a type of auction process in which all bidders simultaneously submit sealed bids to the auctioneer so that no bidder knows how much the other auction participants have bid. Sealed bid refers to a written bid placed in a sealed envelope.

Similarly, we use a sealed-bid auction to sell two copies of Managerial Economics Textbook to three students that will guarantee that the bidders with the two highest values get the books. This can be done by announcing in advance the limited number of textbooks available. The students would then be goiven just one chance to bid on those books by writing in an envelope. The assymetry of infomation can lead to seller getting a high price for the books sold. Thus, seal bid auction can proove to be fruitful for the seller.