Question 7 Consider sealed-bid auctions discussed on Week 6, but this time under complete information. Bidder...

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Question 7 Consider sealed-bid auctions discussed on Week 6, but this time under complete information. Bidder 1 values the object that is up for sale at $1000, while bidder 2 values it at $1200. Both bidders know each others' values for the object. Independently of each others, the two bidders make a bid. The higher bidder wins the object (bidder 2 wins in case of a tie). In the first-price auction, the winner pays his/her bid. In the second-price auction, the winner pays the other's bid. (a) (2 points) Show that bidder 2 wins the object in all pure-strategy Nash equilibria of the first-price auction. I (b) (2 points) Show there are pure-strategy Nash equilibria of the second-price auction where bidder 1 wins the object. Question 7 Consider sealed-bid auctions discussed on Week 6, but this time under complete information. Bidder 1 values the object that is up for sale at $1000, while bidder 2 values it at $1200. Both bidders know each others' values for the object. Independently of each others, the two bidders make a bid. The higher bidder wins the object (bidder 2 wins in case of a tie). In the first-price auction, the winner pays his/her bid. In the second-price auction, the winner pays the other's bid. (a) (2 points) Show that bidder 2 wins the object in all pure-strategy Nash equilibria of the first-price auction. I (b) (2 points) Show there are pure-strategy Nash equilibria of the second-price auction where bidder 1 wins the object.

Answer rating: 100% (QA)

a In the firstprice auction bidder 1 will bid up to his value of 1000 while bi... View the full answer