Cane and Abe are bidding for a painting at an auction. Cane has willingness to pay WC and Abe has willingness to pay WA. Cane does not know Abeâs willingness to pay, and Abe does not know Caneâs willingness to pay. The auctioneer has set the rules of the auction to be a second price sealed bid auction. In this auction, Cane and Abe will each submit a bid in a sealed envelope, bC and bA, respectively. Upon receiving both envelopes, the auctioneer will open them and give the painting to the highest bidder at a price equal to the loserâs bid. Caneâs payoff function is Î C (p) = Wc âp if he gets the painting at price p. If he does not get the painting he has payoff equal to zero. Similarly, Abeâs payoff is Î A (p) = WA â p if he gets the painting at price p, and zero otherwise.
1. Determine Cane's best response to Abe submitting a bid of ba, bc (6A).
2. Cane has a weakly dominant strategy. What is it?
Answers: 1
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Cane and Abe are bidding for a painting at an auction. Cane has willingness to pay WC and Abe has wi...
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