What is the optimal strategy in a second-price,sealed-bid auction?
A) Bid an amount that is equal to your reservation price.
B) Bid an amount that is greater than your reservation price because you will be paying the second-highest bid if you win.
C) Bid an amount that is less than your reservation price.
D) Bid an amount that is less than your reservation price, depending on the number of bidders.
E) If there are fewer than five bidders, bid below your reservation price. Otherwise, bid your reservation price.

Question

Quizplus · Accepted Answer

In a second-price, sealed-bid auction, the optimal strategy is to bid an amount equal to your reservation price (the maximum amount you are willing to pay). This is because you will only need to pay the second-highest bid if you win, not the amount you bid, eliminating the need to bid either higher or lower than your true valuation to try to gain an advantage.

What Is the Optimal Strategy in a Second-Price,sealed-Bid Auction