In a second-price auction, the winner pays
A)the second-to-last bid it made.
B)the average of the top two bids.
C)the amount bid by the runner-up.
D)None of the above.

Question

Quizplus · Accepted Answer

In a second-price auction, the winner pays the amount bid by the runner-up. This is because the auction format is designed such that bidders are incentivized to bid their true value for the item, as they will not have to pay their full bid amount. Instead, they will only have to pay the amount bid by the next highest bidder. This creates an efficient market where the item is sold to the person who values it the most, while still ensuring that the winning bidder does not overpay.

In a Second-Price Auction, the Winner Pays