Second-price auction.
There are 10 bidders. Each bidder i values the object at vi > 0. The indices are chosen in a way so that v1 >v2 >···v10 >0.
Each bidder I can submit a bid bi ¥ 0. The bidder whose bid is the highest wins the object. If there are multiple highest bids, then the winner is the bidder whose valuation is the highest (or whose index is the smallest) among the highest bidders. (For example, if bidder 3 and bidder 9 have the highest bid, then bidder 3 is the winner.)
The winner, says bidder I, gets a payoff vi p, where p is the highest bid made by other bidders. Losing players all receive zero payoffs.
(a) Use the definition of Nash equilibrium to explain why (b1 = v1 + 1, b2 = v2,b3 = v3,...,b10 = v10), is a Nash equilibrium,
(b) Is the profile (bi = v6, for i does NOT = 5 and b5 = v1 + 1) a Nash equilibrium? Explain.
(c) Can you find and verify all Nash equilibria in which player 5 wins the object?
Second-price auction.
There are 10 bidders. Each bidder i values the object at vi > 0. The indices are chosen in a way so that v1 >v2 >···v10 >0.
Each bidder I can submit a bid bi ¥ 0. The bidder whose bid is the highest wins the object. If there are multiple highest bids, then the winner is the bidder whose valuation is the highest (or whose index is the smallest) among the highest bidders. (For example, if bidder 3 and bidder 9 have the highest bid, then bidder 3 is the winner.)
The winner, says bidder I, gets a payoff vi p, where p is the highest bid made by other bidders. Losing players all receive zero payoffs.
(a) Use the definition of Nash equilibrium to explain why (b1 = v1 + 1, b2 = v2,b3 = v3,...,b10 = v10), is a Nash equilibrium,
(b) Is the profile (bi = v6, for i does NOT = 5 and b5 = v1 + 1) a Nash equilibrium? Explain.
(c) Can you find and verify all Nash equilibria in which player 5 wins the object?