There are two players in a second price auction. Player 1has private information and knows that Player 2 is not playing the Nash Equilibrium strategy and his bidding above his valuation. Player 1 should adjust his bid to ensure he wins the auction.

Question

Quizplus · Accepted Answer

If Player 2 bids above his valuation, but below Player 1's valuation, then Player 1 cannot gain by increasing his bid. He will still win and pay the price that Player 2 bid. If Player 2 bids above Player 1's valuation, then Player 1 should not increase his bid. He may accidentally win the auction and pay more than his own valuation.

There Are Two Players in a Second Price Auction