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A seller is auctioning an indivisible object to n potential buyers (also called bidders). Each bidder places her bid in an envelope and all envelopes are given to the seller who opens them and reads the bids. The object is given to the bidder who placed the highest bid and she (the winner) has to pay a price for the object equal to the third-highest bid. The losers do not pay anything. This is known as a third-price, sealed-bid auction. Assume that a bidder i is willing to pay at most vi dollars for the object. Bidder i's payo is equal to vi p if bidder i wins the auction and pays p dollars for the object, or 0 if bidder i does not win the object. Each bidder knows the maximum she is willing to pay for the object, but does not know how much the others are willing to pay for it. The seller does not know the bidders' willing to pay for the object. Show that it is NOT a weakly dominant action for a bidder i to bid vi.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M948418

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