A major result in auction theory is the “Revenue Equivalence Theorem,” stating t

Question

A major result in auction theory is the “Revenue Equivalence Theorem,” stating that:

As a bidder in a standard auction, your gains will be the same irrespective of your bid.

As a bidder in a standard auction, you should choose a bid that equalizes your own gains and the gains of the auctioneer.

As an auctioneer, your expected revenue will be the same irrespective of whether the object you are auctioning off has a high or low value.

As an auctioneer, your expected revenue will be the same if you are conducting a first-price or a second-price auction (or any other standard auction).

As a bidder in a standard auction, your gains will be the same irrespective of your bid.

As a bidder in a standard auction, you should choose a bid that equalizes your own gains and the gains of the auctioneer.

As an auctioneer, your expected revenue will be the same irrespective of whether the object you are auctioning off has a high or low value.

As an auctioneer, your expected revenue will be the same if you are conducting a first-price or a second-price auction (or any other standard auction).

Explanation / Answer

A) True

As In First Price sealed bid auction, auctions are written in an envelope and in Ascending bid auction, they are made in real time. For both the types of auctions, highest bidder gets the bid.

b) True

In second price sealed bid auction, the winner will be the same as the corresponding ascending nid auction, but the price of the bid will be different by the difference in the first and second bid.

So this is true, the results will be same except for the increment in the Ascending bid auction so that the winner outbids the previous bidder

C) False

Bidding your true value will leave the bidder with no profits, but bidding below your true value might make you loose the bid. Therefore, there is no dominant strategy in FPSBA.

d) True

In second price sealed bid auction, the price received by seller is of the second highest bid. Therefore if two bidders have the highest bid,bid will be finalized for the bid of the second highest bid.

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