A stamp dealer is holding an auction for an English Penny Black postage stamp, issued in 1840.Potential buyers are asked to submit written bids for this stamp, and it will be sold to the highest bidder at a price equal to the bid submitted by the second-highest bidder.If bidders understand the logic of this auction and bid in their own self-interest,
A) bidders will shade their bids by approximately 10%, and hence the stamp will be sold for about 10% less than the second-highest willingness to pay.
B) bidders will bid more than their true valuation, since they only have to pay the second-highest bid and not their own bid.
C) bidders will bid exactly their true valuation.
D) the highest bidder will overstate his valuation and the second-highest bidder will understate his valuation.
E) bidders will all bid (n 2 1/2) of their true valuations, where n is the number of bidders.
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