Question
Here are the results of the auction: Player A Player B Player C Player D You WTP $1.10 $3.70 $3.90 $2.00 $1.60 Highest Bid Placed
Here are the results of the auction:
Player A | Player B | Player C | Player D | You | |
---|---|---|---|---|---|
WTP | $1.10 | $3.70 | $3.90 | $2.00 | $1.60 |
Highest Bid Placed | $0.00 | $3.70 | $3.80 | $2.00 | $1.10 |
Payment Made | $3.80 |
RESET
(If you want to play the auction again, you can just hit the reset button.)
So what just happened in this auction? Well, a buyerwith a very lowwillingness to pay may not even have had a chance to place a bid, since the starting bid was $1.00. Other buyers, as we just saw, wouldgenerally bid up to their top price, except the very top bidder. (Actually, in a real auction, there's no way to know whether or not the top bidder bid her top price because she never had to go higher than her last bid to win.) Thus, the seller has succeeded in revealing the willingness to pay of all buyers except the top one.
And what is the seller's revenue? It's generally equal tothe second-highest willingness to pay(plus the bidding increment).
How effective was this auction in maximizing revenue for the seller? If the seller had perfect information, how much more in revenue could she extract?
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