The winner of a second-price auction pays an amount equal to ________.
A) half of his bid
B) the lowest bid
C) the second-highest bid
D) his valuation of the good

Question

Quizplus · Accepted Answer

In a second-price auction, the winner pays an amount equal to the second-highest bid. This encourages bidders to bid their true valuation of the good, as they know they will only pay a price equal to the next highest bid. Choosing A or D would not be accurate as the winner does not pay half of their bid or their valuation respectively. Choosing B would also be incorrect as the winner does not pay the lowest bid.

The Winner of a Second-Price Auction Pays an Amount Equal