N2

Q: Consider a first-price auction between two bidders for a box of money. The box is equally likely to contain $0 or $100. Suppose that bidder 1 knows how much is in the box, and bidder 2 does not.

i) What strategies are dominated for bidder 1? (ii) Given that 1 will not play a dominated strategy, what strategies are dominated for bidder 2?

(iii) Before participating in the auction, what is bidder 2's best guess of what the box is worth? Should bidder 2 bid this amount? Why or why not?