Scenario: Tom, Pat, Arthur, and Julie are participating in a second-price auction for a good. Tom values the good at $150, Pat values it at $180, Arthur values it at $250, and Julie values it at $200.
-Refer to the scenario above.Tom should submit a bid of ________.
A) $150
B) $250
C) $112.50
D) $200

Question

Quizplus · Accepted Answer

In a second-price auction, the winning bidder pays the second-highest bid. Therefore, each bidder's best strategy is to bid their true valuation of the good, as bidding higher doesn't increase their surplus and bidding lower risks losing the auction on a good they value more. Tom's true valuation is $150.

Scenario: Tom, Pat, Arthur, and Julie Are Participating in a Second-Price