Asked by Oscar Cerna on May 12, 2024
Verified
The profit-maximizing strategy for a bidder in a Vickrey auction where there are common values for the object being sold is to bid less than her estimated value for the object, and the more bidders there are, the more the profit-maximizing bidder should shade her bid below her estimated value.
Vickrey Auction
A type of sealed-bid auction where the highest bidder wins but pays the price bid by the second-highest bidder.
Common Values
Refers to a situation in auctions or market settings where a particular item has the same value to all bidders or participants.
Profit-Maximizing
An economic principle where a firm's goal is to achieve the highest possible profit given its production costs and market conditions.
- Familiarize oneself with the strategic implications of Vickrey (second-price sealed-bid) auctions for bidders and sellers.
Verified Answer
PB
Passionn BrownMay 16, 2024
Final Answer :
True
Explanation :
In a Vickrey auction with common values, the profit-maximizing strategy is to bid less than the estimated value to avoid winning the auction at a price higher than the actual value, but also to shade the bid even more in larger bidder pools to increase the chances of winning while still paying less than the actual value. This is known as the "winner's curse" and can be mitigated by underbidding.
Learning Objectives
- Familiarize oneself with the strategic implications of Vickrey (second-price sealed-bid) auctions for bidders and sellers.