Appendix: An incentive-compatible mechanism for revealing true willingness to pay in a private value auction is
A) impossible
B) a Dutch auction
C) a second-highest sealed bid auction
D) a sequential auction with open bidding
E) a discriminatory price all-or-nothing auction.

Question

Quizplus · Accepted Answer

A second-highest sealed bid auction is the best choice as it incentivizes bidders to reveal their true maximum willingness to pay without the risk of paying more than necessary. In this auction, the bidder who submits the highest bid wins the item but pays the amount of the second-highest bid. This encourages bidders to bid their true maximum value as they will only pay the amount of the second-highest bid, thus eliminating the incentive to underbid.

Appendix: an Incentive-Compatible Mechanism for Revealing True Willingness to Pay