Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
-Refer to the scenario above.John should submit a bid of ________.
A) $400
B) $300
C) $100
D) $200

Question

Quizplus · Accepted Answer

In a first-price auction, the highest bidder wins but pays the price they bid. To maximize his utility, John should bid just above the second-highest valuation to ensure he wins the iPod at the lowest possible price above the next highest bidder's valuation. Jacob values the iPod the second highest at $300, so John should bid slightly above $300 to win.

Scenario: John, Jacob, Alex, and Maria Participate in a First-Price