Common-Value, Sealed-Bid Auction
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- A group of bidders participates in an auction for the oil rights of a field
- There is a true value of the oil, but each bidder only has an estimate of this value
- Each submits a bid without knowing the bids of the others
- Highest bidder wins the oil rights
- In a first-price auction, winner pays her bid
- In a second-price auction, winner pays the second highest bid
- Press the Test Drill button to get your estimate of the oil’s value
- Your screen also displays:
- the range of values for the true value of the oil;
- amount by which your estimate may differ from the true value.
- Use the slider to choose a bid amount, then click Bid to submit the bid
- For the winner:
- In first-price auction: Payoff = True Value - Her Bid
- In second-price auction: Payoff = True Value - Second Highest Bid
- For everyone else: Payoff = 0
- Auction price rule: First-price
- Highest Bid = $64
- Value Estimate of Highest Bidder= $87
- True Value of Oil in Field = $78
| Payoff |
= |
True Value |
– |
Winner's Bid |
| $14 |
= |
$78 |
– |
$64 |