Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
-Refer to the scenario above.What is the optimal strategy of each bidder?

Question

Quizplus · Accepted Answer

In a Dutch auction, the price starts high and progressively lowers until someone decides to bid. Each bidder has to decide at which point they are willing to jump in and buy the item. Since Rebecca values the necklace the highest, all other bidders will stop their bidding as soon as Rebecca places a bid. Therefore, Rebecca will win the auction, but she does not want to pay more than necessary. Thus, the optimal strategy for each bidder is to bid up to 9/10 of their valuation of the necklace to ensure they have a chance to bid before Rebecca reaches her limit. By doing so, they maximize their profit while still keeping the price lower than Rebecca's valuation.

Scenario: Rebecca Is Participating in a Dutch Auction for an Antique