Explain why a player in a sealed-bid, second-price auction would never submit a bid thatexceeds his...
Explain why a player in a sealed-bid, second-price auction would never submit a bid thatexceeds his or her true value of the object being sold. (Hint: What if all players submittedbids greater than their valuations of the object?)
Homework Answers
In a second-price sealed-bid auction, the winner pays a price equal tot he second-highest bid.
Now suppose the true value of the object to a player1 is v
Let us assume that he bids at v + b1 (greater than the true value as b1>0)
Now, if one of the other player bids in the range (v, v+b1), player1 will win the auction. But he is making a loss as the price he has to pay is between v and v+b1, but the value from the object is the only v
Thus, in a second-price auction, the Nash equilibrium for all the players is to bid their true value.
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