3. Consider the following problem. A seller has a single item for sale worth not

Question

3. Consider the following problem. A seller has a single item for sale worth nothing to him. There are three buyers, each of whom values the item at $10 (which is a private information). Each submits a bid to the seller independently and the seller accepts the highest bid. Consider the following two games, a and b: a. If the bid is accepted, the buyer gets the item and pays the bid. b. If the bid is accepted, the buyer gets the item and pays the other bidder's bid 3.1 Which game is equivalent to the first price, sealed bid auction? To the second price, sealed bid auction? 3.2 Would the players bid their true valuations of the item in each game? Explain. 3.3 It is claimed that the seller gets more expected revenue from game a than from game b. Do you agree? Explain. 3.4 What are the strategies for each player in each game? Give an example of a possible outcome.

Explanation / Answer

3.1) First price he accepts $10, secone price he accepts $20

3.2) No, the secong one is paying the other bidder's bid also

3.3) Yes, because each pays $10. ie. $10 x 3 players = $30

3.4) The strategies for each player is that :

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