A second price sealed bid auction is better for the seller t

A second price sealed bid auction is better for the seller than a first price auction because in a second price auction the buyer pays less than his bid and will therefore bid higher.’ True or false? Explain with your opinion.

Solution

In first price bid auction, bidders submit their sealed-bids to the sellers. The highest bidder wins the object and pays the value which he wrote in the sealed-bid.

In second price bid auction, bidders submit their sealed bids to their sellers. The highest bidder wins the object and pays the value of the second highest bid. So, in this case, bidders write a high value in their envelope as they know they have not to pay their own value, rather they have to pay lower than their own value.

So the given statement is TRUE.