Suppose that Firm 1, Firm 2, and Firm 3 are the only three firms interested in the lot at the corner of First Street and Glendon Way. The lot is being auctioned by a second-price sealed-bid auction. Suppose Firm 1 values the lot at $ 20,000, Firm 2 at $ 18,500, and Firm 3 at $ 16,800. Each bidding firm’s surplus is vi – p if it wins the auction and 0 if it loses. The values are private. What is each bidder’s optimal bid? Which firm wins the auction, and what price does that firm pay?
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