You are bidding in an auction for a certified, used tractor. You determine that

Question

You are bidding in an auction for a certified, used tractor. You determine that the economic profit you can make from the tractor is $80,000. You do not care about any risk or uncertainty in your estimate of the economic profit. Other bidders have their own valuations of the tractor, which depend on their unique uses for it.

(a) If the auction is an English auction, is your maximum bid more than, less than, or equal to $80,000? Explain your answer.

(b) If the auction is a Dutch auction, is your maximum bid more than, less than, or equal to $80,000? Explain your answer.

(c) If the auction is a sealed-bid first-price auction, is your bid more than, less than, or equal to $80,000? Explain your answer.

Explanation / Answer

a) If the auction is an English auction the bid will be more than $80,000 because of English auction system:- These auctions are carried out interactively in real time, with bidders present either physically or electronically. The seller gradually raises the price, bidders drop out until finally only one bidder remains,and that bidder wins the object at this final price.

b) If the auction is a dutch auction the bid will be less than $80,000 because of Dutch system:-This is also an interactive auction format, in which the seller gradually lowers the price from some high initial value until the first moment when some bidder accepts and pays the current price.

c) If the auction is a sealed-bid first-price auction the bid will be equal to $80,000 because of this system:- First-price sealed-bid auctions. In this kind of auction, bidders submit simultaneous "sealed bids " to the seller. The terminology comes from the original format for such auctions, in which bids were written down and provided in sealed envelopes to the seller, who would then open them all together. The highest bidder wins the object and pays the value of her bid.

Thank you.

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