You are a bidder in an independent private values auction an

You are a bidder in an independent private values auction, and you value the object at $4,000. Each bidder perceives that valuations are uniformly distributed between $1,000 and $7,000

Determine your optimal bidding strategy in a first-price, sealed-bid auction when the total number of bidders (including you) is:

a. 2 bidders.

Bid: $


b. 10 bidders.

Bid: $


c. 100 bidders.

Bid: $

Solution

in a first price sealed bid the strategy is to bid less than your valued amount

b = v - [ (v-l)/n ]

b=bid amount, v= own valuation, l= lowest valuation, n= no. of bidders

for 2 bidders

b= 4000- [(4000-1000)/2]=2500

for n=10, b= 4000- 3000/10=3700

n=100, b= 4000- 3000/100=3997