3. Second Price Auction. In a second price auction with two bidders, we know fro

Question

3. Second Price Auction. In a second price auction with two bidders, we know from class that everyone
bidding his valuation (b1 = v2 and b2 = v2) is the dominant strategy equilibrium.
(a) Show that for player 1, bidding b0
1 < v1 is weakly dominated by bidding b1 = v1.
(b) In classe, we showed that any player 10s strategy b0
1 > v1 is weakly dominated by strategy b1 = v1.
Combine the above two statements, what conclusion can you draw? Why this conclusion is relevant
if we want to show (b1 = v2; b2 = v2) is the dominant strategy equilibrium?

Explanation / Answer

I concluded that its a contradiction since for 1 v1 ; b1=v1 so we cannot show b1 = v2; b2 = v2

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