Suppose that a government wishes to auction 5 million bonds (quantity), and three potential buyers submit the following bids: $\begin{array} { l c c }
& \text { Price } & \text { Quantity } \
\text { Buyer A } & \$ 1,015 & 2 \text { million } \
\text { Buyer B } & \$ 1,000 & 3 \text { million } \
\text { Buyer C } & \$ 990 & 1 \text { million }
\end{array}$ In a discriminatory auction,

Question

Suppose that a government wishes to auction 5 million bonds (quantity), and three potential buyers submit the following bids: $\begin{array} { l c c } 
& \text { Price } & \text { Quantity } \
\text { Buyer A } & \$ 1,015 & 2 \text { million } \
\text { Buyer B } & \$ 1,000 & 3 \text { million } \
\text { Buyer C } & \$ 990 & 1 \text { million }
\end{array}$ In a discriminatory auction,

Quizplus · Accepted Answer

In a discriminatory auction, the highest bidder pays the price they bid for the quantity they requested until all the bonds are sold. In this case, Buyer A bid the highest price of $1,015 and requested 2 million bonds, which can be fulfilled. Therefore, Buyer A will pay $1,015 for 2 million bonds. Then, the remaining 3 million bonds will be sold to Buyer B, who bid $1,000. Therefore, Buyer B will pay $1,000 for 3 million bonds. Buyer C's bid is not considered since they requested for only 1 million bonds and their bid is lower than the other two bidders.

Suppose That a Government Wishes to Auction 5 Million Bonds