Why it is unwise to bid less than your valuation of the good in a sealed bid second-price auction.In the first price sealed bid auction, a player gets a positive payoff by doing bid shading. Explain the tradeoff between biding lower than the value of the object and biding very close to value of the object.

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Why it is unwise to bid less than your valuation of the good in a sealed bid second-price auction.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 1MC

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Why it is unwise to bid less than your valuation of the good in a sealed bid second-price auction.
In the first price sealed bid auction, a player gets a positive payoff by doing bid shading. Explain the tradeoff between biding lower than the value of the object and biding very close to value of the object.

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In a sealed-bid, second-price auction with complete information, the winner is the bidder who submits the second-highest price, but pays the price submitted by the highest bidder. Do you agree? Explain.
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