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Auction Theory
Auction Theory
3 questions
Difficulty 4-6
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Intermediate
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conceptual
In a second-price sealed-bid auction (Vickrey), each bidder submits a sealed bid; the highest bid wins but pays the SECOND-highest bid. Why is bidding your true value a dominant strategy?
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A.
The winner pays nothing at all, and the auctioneer gets revenue from a separate participation fee
B.
All bidders must report identical values, because any deviation triggers a reputation penalty
C.
Your bid determines whether you win but not how much you pay, so overbidding risks paying more than your value while underbidding risks losing a profitable item
D.
The auctioneer compensates the winner with the difference between their bid and the second-highest, eliminating overpayment risk
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