Question 4 A. Show that a dominant bidding strategy in an English auction is to

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Question 4 A. Show that a dominant bidding strategy in an English auction is to continue bidding as long as the price in the auction is less than your true value of the good. B. Suppose that there are six bidders in an English auction for an antique 1950s Vaporizer. Each has his or her own private value for the vintage machine. In ascending order, these values are $50, $60, $70, $80, $90, and $100. a. What will be the winning bid? b. What will be the winning bid if the highest three bidders collude?

Explanation / Answer

a) The winning bid will be $90 as in English auction , the bidding continues till the price in auction is less than the true value of the good. Here, the highest value for the good is $100, so the highest price for that will be $90 as it is less than $100 .

b) If the highest 3 bidders collude, there can be few possibilities as follows:

1) if they decide to keep the value of the good as $100, then the winning bid is going to be $90.

2) if they decide to keep the value of the good as $90, then the winnning bid is going to be $80.

3) if they decide to keep the value of the good as $80, then the winning bid is going to be $70.

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