Overbidding in a secondprice sealedbid auction is likely to

Overbidding in a second-price sealed-bid auction is likely to result in a ________.

A.

negative consumer surplus

B.

positive consumer surplus

C.

negative producer surplus

D.zero producer surplus

Solution

B. Positive consumer surplus.

In second price sealed bid, one has to pay the amount not proposed by him but by the second highest bidder.

Overbidding shows the amount one was willing to pay, but in the second-price auction one has to pay the price bid by second highest bidder. In this way, he pays less than what he was willing to pay.