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.Alex should place a bid of ________.

Question

Quizplus · Accepted Answer

In a first-price auction, the winner pays what they bid. To maximize utility, a bidder should bid slightly above the second-highest valuation to win the item at the lowest possible price. Since Alex values the iPod the least at $250, and Maria's valuation is the second lowest at $200, Alex should bid just above $200 to win. $187.50 is the only option below Alex's valuation and is a strategic underbid, assuming a mistake in the options provided.

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