Consider an antique auction where bidders have independent private values.There are two bidders,each of whom perceives that valuations are uniformly distributed between $100 and $1,000.One of the bidders is Sue,who knows her own valuation is $200.What is Sue's optimal bidding strategy in a Dutch auction?

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In a Dutch auction, the auctioneer starts with a high asking price which is gradually lowered until some participant is willing to accept the auctioneer's price, or a predetermined minimum price is reached. The optimal strategy for Sue, knowing her own valuation is $200, is to bid just before the price drops to the next highest bidder's maximum valuation, which she estimates based on the uniform distribution of valuations. Since she cannot know the other bidder's valuation but knows it is uniformly distributed between $100 and $1,000, her best strategy is to secure the item for a price slightly above the lowest possible valuation of the other bidder to avoid the risk of losing the item for a price she would have been willing to pay. Therefore, yelling "mine" when the bid reaches $150, slightly above the minimum possible valuation of the other bidder, is her optimal strategy to maximize her utility, assuming the other bidder values the item at least $150 or more.

Consider an Antique Auction Where Bidders Have Independent Private Values