Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Shemp's optimal strategy is to submit a bid of:

Question

Quizplus · Accepted Answer

Shemp's optimal strategy in a private value auction is to bid his true valuation, which is $80,000. However, since the highest bid he can make without exceeding the next highest valuation (Curly's $70,000) is $70,000, he should bid $70,000 to win the auction at the lowest possible price.

Moe, Larry, Curly, and Shemp Are Bidding Groucho Marx' Rubber