Question

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3. eBay, the online auction site, describes its bidding system in the following way (I literally copied it from eBay's website with very minor edits only): "Our max bidding system makes bidding convenient so you don't have to keep coming back to re-bid every time someone places another bid. ... When you place a bid, you enter the maximum amount you're willing to pay for the item. The seller and other bidders don't know your maximum bid. We place effective bids on your behalf using the automatic bid increment amount, which is based on the current high bid. We escalate your effective bid only as much as necessary, usually by 50 cents, to make sure that you remain the high bidder ... up to your maximum amount. ... Your maximum bid is kept confidential until it is exceeded by another bidder..." Here is an example. Tom is the current high bidder, and has placed a maximum bid of $12.00 on an item. His maximum bid is kept confidential from other eBay members. Laura views the item and places a maximum bid of $15.00. Laura becomes the high bidder. Laura's effective bid is escalated by 50 cents from Tom's maximum bid and is now $12.50. If there are no further bids, Laura wins the item and pays only $12.50 instead of her maximum bid of $15.00." a). What auction format discussed in class does the eBay auction most closely resemble? For each of the following two dimensions, choose one. No explanations needed. Whether it's: open-outery OR sealed-bid (3 points) Whether it's first-price OR second-price [3 points]

Answer 1

• The auction format is a SEALED BID. Because open outcry bid means shoting out your bids in public. It was done earlier in Trading or auctions.A sealed bid is not made public and your bid is kept confidential.
• It is SECOND PRICE type of sealed bid. Because First Price bid means the winner pays the bid he/she has proposed to pay. in second bid system the winner pays the minimum of the 2 highest bids as is done here. first bid is original bid of$15 and the second bid is effectively kept at $12.50. the minimum out of these two is the latter one and hence it is paid.